GLOBALIZATION - A 30-YEAR LOOK-BACK
Edition 1, July 2010
~ TABLE OF CONTENTS: ~
Chapter 1 ~Summary of Accomplishments of Globalization During the Past Three Decades ~
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Chapter 1 ~ SUMMARY OF ACCOMPLISHMENTS OF GLOBALIZATION DURING THE PAST THREE DECADES ~
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Chapter 2 ~ INTRODUCTION ~
The globalization process started to have a significant effect on national economies around 1980. It seems worthwhile, then, to look back at its effects on a global, national, and personal level over the past 30 years. A lot of data have been collected, and much of it can be found in the six globalization-related documents on this website. Here we condense these data in order to get a clearer picture of what has been happening, and where the world's economies are headed over the next few decades. In recent years, public opposition to trade agreements among large regions of the world has been increasing. The public in both the developed and developing worlds has become skeptical of the basic arguments for eliminating trade subsidies and import duties. This skepticism in both worlds has merits. The two most often-heard arguments in developed nations supporting globalization are easily shown to be false. (See Arguments 1: and 2: below.) Developing nations are feeling all manner of side effects that no one told them about when they were sold on globalization ideology, and on the idea of joining multi-lateral trade organizations. Many were coerced into signing on to various trade agreements (SeeSection [3-E].) Many now see these trade agreements as a return to colonialism. Being forced to submit to "Structural Adjustment Programs" has been found to be particularly, extremely, unnecessarily painful and to reflect erroneous ideologies of major advocates of globalization.
One should also note that nations have a wide variety of strategies for dealing with globalization that typically depend of the circumstances faced by each nation. Western Europe manages globalization-related policies to maintain modest trade surpluses (05G2). Germany and Japan both manage to keep their advanced manufacturing sectors anchored at home, and to defend domestic wage levels and social guarantees. When they do disperse production and jobs overseas, as they must, they do so strategically. Japan, in order to (1) survive in a globalizing world, (2) maintain positive trade balances, and (3) maintain the world's highest wages, has no other choice but to resort to a strategy of covert protectionism. The US has, for over three decades, run large, risky, non-sustainable trade deficits. It also makes no effort to protect US wages, and it defines "national interest" primarily in terms of advancing the global reach of the world's 60,000+ multi-national enterprises (05G2). Nations like Chile, China and Vietnam are inclined to ignore the rules of globalizations, and appear to have benefited significantly from such policies.
It is important to note, however, that in a world of exploding mobilities of virtually every element of economic activity, the option of doing away with globalization no longer exists in any realistic sense. However, it is possible to:
The false ideologies problem has probably caused more human misery and expense than any other globalization-related problem. It apparently originated in the early 1980s with a new US president (See Chapter 4 of Ref. (09S1) for a detailed analysis of this issue.)
Argument 1: The common argument contending that globalization would benefit developed world labor is based on the argument that the "labor productivity" of developed world labor is greater that the "labor productivity" of developing world labor. This is a faulty argument because "labor productivity" is a misleading terminology. "Labor productivity" in developed nations is greater than that in developing nations almost entirely because of greater use of financial capital and human capital (investments in computerization, sophisticated machinery, education, infrastructure, etc.). Such capital, today, is highly mobile, just like virtually all the other elements of economic activity. Capital flows to developing nations are producing new scientific and technical universities by the hundreds per year in nations like China and India where capital inflows greatly exceed capital outflows. "Labor Productivity" is thus just another extremely mobile element of economic activity. It is certainly not something that is likely to give developed world labor a permanent and significant edge over developing world labor (that typically earns a tenth or so of developed world labor). Reducing developed world wages and benefits by the 70% required to achieve convergence between the two worlds would wipe out western civilization, as we know it.
Argument 2: It would be impossible to deny that exploding mobilities of virtually every element of economic activity in an extremely bi-polar global economy must produce ever-decreasing bi-polarity - eventually to the point of largely eliminating bi-polarity. Convergence of the economies of the developing- and the developed world economies is thus a certainty. The only question is: what would characterize the converged state? The commonly argued position is that the converged state will resemble the current developed world economy to a far greater degree than it will resemble the current developing world economy. "Footprint" analyses and "Net Primary Production" analyses (08S2) can easily show that this is a physical impossibility - even neglecting growing problems with fossil fuels supplies. (See Sections (6-A) and 6-B) in Reference (08S1).) Just the 20% of developing world labor that is currently producing for the global economy has caused significant increases in prices of virtually all the natural resources that are vital to economic activity. Also see Appendix A for data that shows the impossibility of developing world wages and benefits approaching anything close to the wages and benefits of the developed world.
Argument 3: We often hear that the US needs to adopt this or that policy in order to "remain competitive in world trade." The US has not been competitive in world trade since 1976 (the entire span of the current globalization era). Other developed world nations have been able to be competitive in world trade, albeit with considerable (and growing) difficulty in recent years by managing their globalization better than the US does. The annual US trade deficit has been increasing rapidly in recent decades. Prior to 1967, the US ran trade surpluses for 74 consecutive years (00B2).
Argument 4: An often-repeated argument contends that the Smoot-Hawley tariffs, instituted 8 months after the stock-market crash of 1929, caused the Great Depression of the 1930s. Note however that imports in 1930 were 4% of GDP, and 2/3 of that came in tariff-free. Smoots-Hawley tariffs then represented a marginal tax hike of 1.3% of GDP - hardly a likely source of a 46% contraction of the US economy, 25% unemployment, and a wipeout of 85% of the value of the U.S. stock market (00B2).
Economic Trend Analysis: With no validity in Arguments 1 and 2, judgments of the future economic effects of globalization must come from comparing economic trends before and after 1980. This is done below. More detailed analyses of the issues examined below can be found in the six other documents on this website dealing with globalization.
The merit-judging process is easier if we first understand the fundamental differences between the developed and developing worlds. The major driving forces behind globalization (World Bank, International Monetary Fund (IMF), World Trade Organization (WTO) et al) fail to do this, and base their globalization policies on basic concepts like those used by Adam Smith and David Ricardo ("Comparative Advantage," "free markets," etc.) These ideology-based approaches have lead needlessly to (1) huge, costly errors and immense suffering that could easily (and inexpensively) have been avoided as will be seen below, and (2) growing public outrage against the globalization process.
Fundamental Differences: Exploding mobilities of essentially all components of economic activity imply that the fundamental differences between the developed- and developing worlds will diminish over time. We need to determine what these fundamental differences are. An analysis in Ref. (09S1) demonstrates that the main fundamental difference is the extreme scarcity of financial capital in the developing world. Financial capital in the developed world is a glut in comparative or absolute terms (judging from the low cost of renting capital, i.e. interest rates). Virtually all the other apparent differences are easily traced back to this fundamental difference (09S1). If the fundamental difference were to disappear, so also would virtually all the apparent differences. Ref. (09S1) shows that high population growth rates cause the extreme scarcity of financial capital in developing nations. The link between the two factors is infrastructure. High population growth rates require corresponding high growth rates in the infrastructure needed to accommodate growing numbers of people. The current cost of this added infrastructure is roughly $1.4 trillion per year for the developing world as a whole (09S1). People earning a median $2/ day / person (subsistence level) could not possibly come up with that kind of money. The extreme scarcity of financial capital characterizing the developing world, and the bulk of all the ills that result from that scarcity, stem from the drain on financial capital created by the need (mostly unmet) for more infrastructure.
The evidence for the above-mentioned link between population growth and financial capital scarcity is compelling. Over the past 100 years, only eight nations have progressed from developing-world status to, or close to, developed-world status. All eight of these nations made the conversion during periods of active family planning programs (09S1). Also, in recent decades, family planning programs have been active in three Latin American countries - Brazil, Chile and Mexico. All three nations now show the beginnings of a middle class - a rarity in Latin America.
It must be pointed out, however, that repeating the conversion from developing world status to developed world status becomes increasingly difficult as the remaining 150 or so developing nations attempt to make the conversion. Over time, natural resource constraints increasingly determine how far the conversions progress, and the global economy becomes increasingly natural resource constrained. (SeeAppendix A.) In a totally natural-resource-constrained global economy, developed world wages and benefits would decrease by about 70%, and developing world wages would roughly triple at the point of convergence. This assumes a starting point of developed world wages being ten times that of developing world wages. It is far from clear that the US, or any other developed nation, could survive a 70% reduction in wages and benefits. One effect would be defaulting of all bonds and other fixed investments and an extreme decline in common stock values reflecting extreme deflation. One solution to deflation: print money.
Effects of Fundamental Differences: Exploding mobilities of virtually all elements of economic activity cause, in essence, a mixing of the developed world economy with the developing world economy. As noted above, developing world economies suffer from (1) extreme scarcities of financial capital (the cause of virtually all of the other problems of the developing world (09S1)) and consequently (2) extreme gluts of labor. Such a mixing of economies must therefore provide huge benefits to developed world providers of capital. Increasing levels of buying goods produced by cheap developing world labor, and then selling those goods to developed world consumers who earn roughly 10 times more than the developing world labor that produced these goods cannot help but produce high profit margins. Such a mixing of economies can also hardly avoid imposing extreme duress on those who provide labor to the developed world's GDP (in essence, the consumer sector of that economy - roughly 2/3 of the US economy). Developed world wages and benefits must decline due to (1) competition from developing world labor and (2) weak developed-world labor markets due to the export of millions of developed world jobs overseas. (Economist Alan Blinder contends that, of about 140 million jobs that presently exist in the US, 42-56 million could be moved offshore during the next decade or two. His estimate includes all 14 million current US jobs in manufacturing and 28-42 million jobs in the services sector (07M1).) The economic changes observed in the US in recent decades agree with these expectations. Wages and benefits make up the lowest share of the US GDP since 1947 (when such data first started being tabulated). Corporate profits in the US, on the other hand, have climbed to their highest share of the GDP since the 1960s (06G1).
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Chapter 3 ~ PROBLEMS WITH GLOBALIZATION IN DEVELOPING NATIONS ~
Section (3-A) ~ Currency Devaluations:
Early trade agreements specified that financial capital must be infinitely mobile across national borders. This specification caused the currency devaluations in the late 1990s in Southeast Asia and Latin America. These caused massive economic duress throughout the affected region where economic safety nets are minimal or non-existent. Southeast Asian and Latin American countries that refused to go along with the ill-conceived elements of the trade agreements (e.g. Chile) suffered little or no economic pain. In multi-national trade agreements since the currency devaluations, developing nations are insisting that provision for rapid transfer of funds from one nation to another be eliminated.
Section (3-B) ~ Health Care in China:
China, in seeking ways to become more competitive in the global marketplace, has decided to sacrifice the health of its citizens. In 1975, 85% of China's rural residents had government-financed health care. Today 10% do. In 1991, 39% of China's total health-care expenditures came directly out of pockets of individual citizens. By 2000, individuals paid directly for 60% of China's health-care costs. Through the 1990s, Chinese farmers' incomes roughly tripled, but medical costs increased more than 8-fold. Life expectancy in China increased from less than 40 years in 1950 to 69 years in 1982. But during the ensuing 20 years (the globalization period), life expectancies increased by only one year (
Until the beginning of the early 1980's, China's socialized medical system, with "barefoot doctors" at its core, worked public health wonders. Since then, China has privatized vast swaths of its economy and shifted public health resources toward the cities. The collapse of China's socialized medicine and cost increases has opened a gap between urban health care and rural health care. (About 80% of China's population is rural and not involved in exports.) In less than a generation, China's rural population has gone from 0% uninsured to 79% uninsured in terms of health care (06U1). More than 50% of urban residents enjoy coverage, supplied by their employers. Once a peasant's illness becomes debilitating, his/her relatives can face the decline of a breadwinner, and medical bills steep enough to bankrupt the family (06U1).
Section (3-C) ~ Consumption Patterns throughout the Developing World:
The negative effects of globalization on developing nations are well illustrated by a study by Weisbrot et al (
Section (3-D)~ Effects of Globalization on the Poorest of Developing Nations:
Cambodia is typical of the poorer developing world countries that have joined the World Trade Organization (WTO). Population growth rates are typically high in the poorest nations of the developing world. As a result, insufficient financial capital is generated to create the human capital needed to provide anything other than unskilled labor to the global economy. For these people, wage scales are typically subsistence level, making the generation of financial or human capital virtually impossible. About 80% of Cambodians work in agriculture - typical of poorer developing world countries. Before it joined the WTO in 2004, impoverished Cambodia agreed to expose its farmers to more competition that the EU and the US were willing to accept for theirs (
In 2006, the UN Development Program (UNDP) disputed the less-than-forthright WTO ideology-based argument that removing trade barriers is the surest way to reduce poverty. Instead the UNDP advises poor Asian countries like Cambodia to do what Japan and South Korea did successfully in the 1970s and 1980s: protect key industries (usually agriculture) temporarily with tariffs on agricultural imports before exposing them to foreign competition (06W1). The UNDP noted that expanding global trade creates jobs for skilled laborers (a rare commodity in nations with dire scarcities of financial capital and hence human capital). Huge surpluses of poorly educated rural folk are the overwhelming problem for developing nations. These people can no longer make a living in the 60-80% of the economy that is in agriculture because of heavily subsidized farm imports from the US and EU.
Section (3-E) ~ Power Politics in World Trade:
Increasingly heavy-handed behavior of developed nations, via the World Trade Organization (WTO) and others, in imposing their versions of the trade rules defining modern-day globalization on the developing world, has been documented in a book by Jawara and Kwa (
A book by John Perkins (04P2) (who worked with US intelligence agencies) described similar US dealings with developing nations. Perkins, a former chief economist at Boston strategic-consulting firm Charles T. Main, worked for 10 years helping US intelligence agencies and multinational corporations cajole and blackmail foreign leaders into serving US foreign policy. His economic projections cooked the books to convince foreign governments to accept billions of dollars of loans from the World Bank and other institutions to build dams, airports, electric grids, and other infrastructure he knew they couldn't afford. The deals were smoothed over with bribes for developing world officials, but it was the taxpayers in these countries who had to repay the loans. When their governments couldn't do so (as was often the case) the World Bank or the International Monetary Fund (IMF) would essentially place the developing nation in trusteeship. They would then dictate everything from its budget to security agreements, and even to its UN votes (04P2).
A similar analysis by George Monbiot (05M1) described disasters imposed on developing nations by the World Bank. He noted that a past president of the World Bank, Robert McNamara, concentrated almost all the World Bank's lending on vast prestige projects - dams, highways, ports - while freezing out less glamorous causes such as health, education and sanitation. Most of these major projects have, in economic- or social terms or both, failed catastrophically (96C1). He bankrolled Mobutu and Suharto (both corrupt, despotic rulers), deforested Nepal, trashed the Amazon, and promoted genocide in Indonesia (Recall Indonesia's "transmigration" program, first funded by the World Bank in 1976). The developing nations affected were left with unpayable debts, wrecked environments, grinding poverty, and unshakeable pro-US dictators (05M1).
What is so tragic about all of this is that the World Bank was once a leader in bringing family planning and contraception to the developing world. But, around 1980, major political changes occurred in Washington (09S1). (Note: The World Bank is controlled mainly by the US.) The new US leaders had a dim view of contraception and family planning, so the World Bank changed accordingly and adopted the new administration's "bad government" theory of the developing world's ills, plus the environmental policies, population policies and foreign policies that came with it, all of which turned out to be disasters (See Chapter 4 of Ref. (09S1)). Had McNamara and the US leadership realized that the ills of the developing world were caused by dire scarcities of financial capital caused, in turn, by demands for infrastructure growth required by population growth, the above-mentioned disasters precipitated by the World Bank would probably not have happened.
Section (3-F) ~ Misconceptions about "Successfully" Globalized Nations:
One often hears about nations like China, Viet Nam and Chile as being prime examples of the success of globalization ideology. However, closer examination of these "globalization success stories" shows the exact opposite. The economic growth of these nations can be shown to have resulted more from ignoring the advice of globalization's advocates and globalization's ideology than from heeding it. These nations' governments played an overwhelmingly dominant role in subsidizing, and controlling, the development of the industrial and agricultural segments of their respective economies (
Section (3-G) ~ SAPs: Another Unnecessary Ideology-based Disaster for Developing Nations:
Perhaps no single example of globalization mismanagement has caused more duress to more developing world people than SAPs (Structural Adjustment Programs) (
Argentina, after the recession of around 2001, was forced by SAPs to eliminate public education. Prior to that, Argentina was one of the world's least socially stratified nations. Eliminating public education is producing a caste system. The poor become illiterate and unable to lift themselves out of the lowest caste.
The apparent strategy of SAPs was to make developing nations more "efficient" by eliminating internal subsidies and eliminating subsidies for exports, a major intent of the WTO. One goal was apparently to increase the likelihood that these nations will become better able to repay their external debts, currently amounting to well over $3 trillion and growing (08S3). The results of SAPs were the exact opposite. They provided a significant portion of the cause of the development of a large, and rapidly growing, "informal" economy in which daily survival is often challenging. (The "informal economy" is projected to become about two thirds of the developing world economy during the next few decades (08S3).) They also greatly decreased likelihood that these developing nations will ever repay their $3 trillion+ external debts. A default on the order of $3 trillion in loans poses a potentially staggering blow to developed world financial institutions and taxpayers. It also imposes a potential staggering blow to developing world economies when they lose their access to future external loans.
Political ideologies are clearly at play here. The developing world's problems have little to do with "inefficiencies" (a.k.a. "bad government"). Instead they are due to the staggering burden (about $1.4 trillion/ year) of financing the expansion of infrastructure required to accommodate population growth. The result is a dire scarcity of financial capital that causes "bad government" and virtually all the other problems typical of developing nations. Active family-planning programs could eliminate these problems - and do so at low (and declining) cost (a small fraction of the developed world's development and humanitarian aid to the developing world) (09S1).
SAPs devastated rural smallholders (farmers) by eliminating developing nation agriculture subsidies and pushing developing world farmers into global commodity markets dominated by developed world agri-businesses (heavily subsidized by developed-world governments) (00B1). For the typical developing nation with an economy that is 50-70% agriculture-based, this is no small matter. Adding to SAPs effects on developing world agriculture, three other processes are occurring at the same time: (1) the conversion of labor-intensive agriculture to capital-intensive agriculture in developing nations (causing huge reductions in farm labor per unit area of farm land), (2) population growth in developing nations requiring subdivision of farms among multiple heirs, and (3) little (if any) undeveloped arable land. The total effect of all four of these changes are producing one of the largest human migrations ever known - the rural-to-urban migration. Dispossessed farmers typically migrate to the vast slums that ring the bulk of the large urban areas of developing nations. There they typically become part of the "informal" economy where survival is often a daily challenge (08S3). The "informal" economy of the developing world is expected to become 2/3 of developing world's economy (08S3). This is likely to produce serious political repercussions because those in the "informal" economy are often abused and discriminated against by those in the formal economy.
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Chapter 4 ~ PROBLEMS WITH GLOBALIZATION IN DEVELOPED NATIONS ~
Section (4-A) ~ The Race to the Bottom in Developed World Agriculture:
There are examples of "protectionism" that are undeniably beneficial, if not essential, for mankind's survival. This suggests that the fundamental ideology behind globalization is fundamentally flawed and must be examined on a case-by-case basis. A good example is found in developed world agriculture. The EU, Japan, Switzerland and Scandinavian nations must subsidize their farm sectors because these farms operate with far greater attention to output sustainability (
Section (4-B) ~ The Role of Globalization Ideology in Precipitating and Prolonging the Great Recession ~
Exploding mobilities cause, in essence, a mixing of the developed world economy with the developing world economy. As noted above, developing world economies suffer from (1) extreme scarcities of financial capital (the cause of virtually all of the other problems of the developing world (
The economic changes observed in developed nations in recent decades agree well with the expectations noted above. Wages and salaries make up the lowest share of the US GDP since 1947 when such data first started being tabulated. Corporate profits in the US, on the other hand, have climbed to their highest share of the GDP since the 1960s (06G1). Ever since data were tabulated, US wage and salary trends tracked labor productivity trends well. Since around 1980, wage/salary growth has been lagging labor productivity growth. Today, wages and salaries are well over 20% below what labor productivities would suggest. Revision of US tax laws to tax the earnings of capital less than the earnings of labor are taxed could not possibly do anything but make matters even worse (10S1).
A sick consumer sector of any given economy means that the demand for capital to expand the facilities needed to provide goods and services to the consumer sector is reduced. The cost of renting capital (interest rates) drops as the demand for capital drops and as corporate profits create abundant financial capital. Federal monetary policy, in such situations, attempts to prop up the sick consumer sector - typically by lowering interest rates. These pressures on interest rates cause the returns on investment in retirement vehicles (e.g. IRAs, 401(k)s and annuities) to fall to barely more than the rate of inflation. This, in turn, causes investors to demand investments with high rates of return. Financial institutions accommodate these demands by creating all manner of high-risk investments, e.g. hedge funds and mortgages with ballooning repayment schedules sold to sub-prime borrowers. In fact, all the dozen or so major dysfunctionalities in the US financial system (See the list in Reference (10S1).) reflect attempts to satisfy demands for high rates of returns for investments by adding increasing elements of risk to investment opportunities sold to unsuspecting investors. (10S1).
Results have been tragic for most investors. Prolonged periods of low interest-rate environments have also been tragic for millions of would-be homeowners. Low interest rates made the cost of borrowing for a home abnormally low, enticing many would-be homeowners to enter a real estate market without fully understanding the risks posed by interest-rate fluctuations. The situation is made more precarious in an environment in which mortgage sellers are devising all sorts of ways to add risk to mortgages (e.g. ballooning repayment schedules) in order to increase rates of return for investors in mortgage-backed investments (10S1).
The tragedy of all this has not yet become fully apparent to most Americans. All the US recessions since the start of globalization (around 1980) have had jobless recoveries (09G1). The current "Great Recession" in the US shows every sign of continuing this trend. This suggests a sick consumer sector of the US economy for the indefinite future. This creates a poor environment for people trying to create IRAs, 401(k)s and annuities for retiring on for the indefinite future. This also suggests a dysfunctional financial system for the indefinite future. For the unemployed, this is an especially sad prognosis.
Europe is now showing the same problems as the US has been experiencing. The pressures on EU wages and benefits resulting from globalization-related pressures have forces EU governments to borrow heavily to fund the health care systems, public education systems, labor laws, and other amenities that Europeans have long grown accustomed to. As the consumer sectors of poorer EU nations grow weaker, the ability to repay the loans they took out become increasingly open to doubts. The result: high interest rates that make the ability to repay loans even more doubtful. A tragic spiral and global repercussions seem inevitable. Japan and the EU managed globalization far better than the US (10S1). This is why the Great Recession hit the US the hardest. Yet, the ever-increasing pressures of globalization are now affecting all three developed regions in similar ways. All three regions (and even Argentina (08S3)) now show strong evidence of caste systems developing (08S3). These make it increasingly difficult, if not impossible, for newer entrants into the labor force to advance in the ways their parents did before globalization became significant.
Americans also still don't realize that they have been struggling to deal with the pains of globalization since 1980. US labor, faced with stagnant, or declining, real earnings that keep falling increasingly behind their rate of "labor-productivity" have been able to largely nullify those pains by employing seven non-sustainable strategies for maintaining their normal (pre-globalization) living standards. These strategies are:
The seventh strategy for protecting US living standards ended tragically in late 2007 and 2008 in the long-anticipated (and inevitable) bursting of the housing bubble, declining home values, and a blizzard of mortgage foreclosures. That blizzard was significantly enhanced by the far smaller equity that the homeowner had left in their homes after having sold so much of it off at the urging of the banks. The weakened consumer economy has also created a huge supply of empty commercial real estate, and this has created serious problems for banks that hold the titles to this real estate (10H1).
All the economic pains in the consumer sector of the US economy before the bursting of the housing bubble were multiplied by all of these effects. In essence, the globalization-caused pain felt by providers of labor competing directly with developing world labor and losing their jobs via outsourcing to developing nations has been spread to virtually every US citizen, to most of the EU, and even to Iceland, Ireland and England.
At this point (mid-2010) early in the Great Recession, US consumers have little or nothing left to sell off: All their options have been "maxed-out," or nearly so. This puts the consumer sector of the US economy, and hence the US economy as a whole, in a precarious position. No "eighth strategy" exists that could halt, or slow, the descent of US wages and benefits down to developing world levels. As noted above, this involves something on the order of a 70% decline (08S1). This virtually insures an ever-worsening consumer sector of the US economy, major declines in the prices of stocks, bonds and other investment options, and even the inability to maintain basic infrastructure.
In the EU, the above-mentioned seven strategies took the form of massive under-the-table borrowing. This was aimed at maintaining the living standards of Europeans who have long been accustomed to employment benefits that even Americans lack. The possibility of a collapse of Western Civilization seems within the realm of the possible. The vast infrastructure of the developed world could not possibly be maintained when wages and benefits of the consumer sector decline by on the order of 70%. In fact, numerous analyses have shown that US transportation infrastructure, its power grids and dams, and its water/sewer-related infrastructure are already in deplorable conditions (07H1).
Also the US Congress has started to give up on the financing of various economic stimuli. They have realized, correctly, that permanently fixing the consumer sector of the US economy requires a perpetual series of economic stimuli. This is physically impossible without bankrupting the federal government. This puts the consumer sector of the US economy (and hence the US economy as a whole) in a position even more precarious than before. No options remain (at least at the state- or lower levels) for halting, or slowing, the descent of US wages and benefits down to developing world levels (involving something on the order of a 70% decline (08S1)). This makes it probable that we will now see an ever-worsening consumer sector of the US-, EU-, and Japanese economies, continuing low interest rates, increasing levels of unemployment, major declines in the prices of stocks, bonds and other investment options, more bankruptcies, more foreclosures, shrinking "safety nets" (e.g. social security and Medicare) at the national, state, and local levels, and a reduced inability to maintain basic US infrastructure that is already in bad shape. In terms of societal options, it is far from clear that any options exist for reducing the pains of globalization sufficiently to avoid a societal collapse.
The full impact of the "Great Recession" on Americans (even with all of the above pain) has still not completely registered on the outlooks of Americans. What they fail, so far, to understand is that globalization has been causing Americans much economic duress since long before the bursting of the housing bubble. A run-of-the-mill recession has become the "Great Recession" simply because of the simultaneous mixing of the pains of globalization with the pains of the bursting of the housing bubble. As noted above, globalization created the environment of low interest rates and a dysfunctional US financial system. This, in turn, produced the housing bubble and its inevitable bursting.
Section (4-C) ~ The Risks Involved in US Long-Term Non-competitiveness in World Trade ~
In 1980 the rest of the world was indebted to the US by about $0.3 trillion. At the end of 2005, total US foreign debt was $13.6 trillion (about $119,000/ household). Net foreign debt (which excludes the $11.1 trillion in US-owed foreign assets) was therefore $2.5 trillion (20% of the US GDP) (06W3). The 3+ decades of continuous US trade deficits (currently about $400 billion/ year) has resulted in an added $2.5 trillion in cumulative debt. These debts, plus the rapid pace of US accumulation of new debt, plus rising interest rates, could lead to a vicious cycle of increasing borrowing causing (and being caused by) increasing interest rates.
The situation could get out of hand quickly (06W3). The US has been absorbing roughly 70% of the world's available external savings (06R3). This fact alone tells us that the US current account deficit (the broadest measure of the trade deficit) cannot continue doubling without encountering serious problems. For the first time in at least 90 years, the US is paying noticeably more to its foreign creditors than it receives from its investments abroad (06W3). Deutsche Bank Research (and former Federal Reserve Chairman Alan Greenspan) warned that capital flows into the US could dry up, causing the US dollar to drop, interest rates to increase, and stock markets to dive. A sustained drop in US stock markets could precipitate a downward spiral of these events. Americans would have to pay higher interest rates (and higher oil prices) at the worst possible time, and the US economy could lurch to a halt (Wall Street Journal (4/22/02)).
Expert Opinions: A 1/7/04 report (04B1) by the International Monetary Fund (IMF), when viewed in conjunction with the rapidly growing federal budget deficit, warned of "significant risks" not just for the US but for the rest of the world as well. It warned that US' net indebtedness to the rest of the world could equal 40% of its total economy within a few years - an unprecedented level of external debt for a large industrial country, and one that could play havoc with the value of the dollar and international exchange rates, push up global interest rates, and slow global investment and economic growth. (The US dollar has been declining since February 2002. A falling dollar promotes inflation, hence rising interest rates, rising natural resource prices, and trouble in US stock markets.) The Institute for International Economics supports the IMF outlook, as does Robert E. Rubin (former secretary of the Treasury) who warned that the federal budget was "on an unsustainable path." Warren Buffet, the legendary investor, said that the US is destined to become, not an "ownership society" but a "sharecropper society" (05G2).
Comparison with other developed nations: All this is in sharp contrast to the performance of other developed nations. Western Europe, whatever its problems, manages economic policy to maintain modest trade surpluses (05G2). Germany and Japan both manage to keep advanced manufacturing sectors anchored at home, and to defend domestic wage levels and social guarantees. When they do disperse production and jobs overseas, as they must, they do so strategically. By contrast, Washington defines "national interest" primarily in terms of advancing the global reach of the world's 60,000+ multi-national enterprises (05G2).
Infrastructure Crisis: A report "Infrastructure 2007: A Global Perspective," released on 5/9/07 by the Urban Land Institute and Ernst & Young LLP concluded that US airports, roads, rail lines, bridges and other transit infrastructure are deteriorating across the US because of insufficient investment. The report says that the failure to address this "emerging crisis in mobility" will undermine the ability of the US to compete internationally. In 2005 the American Society of Civil Engineers graded as "poor" the condition on the US transit infrastructure as well as US power grids, dams and systems for drinking water and waste water (water lines and sewer lines). The US faces a $1.6 trillion deficit in needed infrastructure spending though 2010 for repairs and maintenance according to the ULI/ Ernst & Young report. China spends 9% of its GDP on infrastructure; India spends 3.5%. The US spends 0.93% of its GDP ($112.9 billion/ year) on infrastructure according to the ULI/ Ernst & Young study (07H1).
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Chapter 5 ~ PROBLEMS WITH GLOBALIZATION WORLDWIDE ~
Today's globalization's rules are once again being stacked heavily, and needlessly, in favor of multinational corporate interests with each new trade agreement - just like they were in previous globalizations. (See Chapter 1, Part [1B2] of Reference (08S1).) Many of these rules are contrary to fundamental globalization ideology, leading one to suspect that the ideology is based on an agenda other than what the public has been led to believe. These rules tends to enhance corporate profits even more than what is provided by the intrinsic advantage of combining the developed world economy with the capital-starved developing world economy. Some examples follow.
Chapter 9 of Reference (08S1) examines these issues and numerous similar issues in detail.
Appendix A ~ Facts and Figures supporting the Contention that the Point of Convergence Between the Developed and the Developing Worlds Cannot be Close to Conditions like those in the Developed World.
Around 80% of fish for human consumption ends up in three main markets (Japan, the US and the EU) (03W2). Since the population of the developing world is about five times that of the developed world, per-capita fish consumption in the developed world is about 20 times that of the developing world. So multiplying the population of the developed world by a factor of five would wipe out the world's marine and freshwater fisheries many times over. (The World's marine and freshwater fisheries are extremely, and non-sustainably, over-fished. This makes increases in global fish harvests highly unlikely.)
The world's total annual timber harvest consumed by the developing world is about equal to that in the developed world. Since the population of the developing world is about five times that of the developed world, per-capita timber consumption in the developed world is about 4 times that in the developing world. The world's forests are already badly over-harvested, so timber harvests are non-sustainable and therefore unlikely to increase over time without serious consequences.
Crude oil production is decreasing in all but a few nations, and most of the nations where oil production is still rising are small producers. China, where oil production is still rising, no longer exports oil. Global crude oil production (i.e. extraction-) rates exceed crude oil discovery rates by a factor of about four. Experts agree that no more undiscovered giant (oil) fields remain. Were it not for the production from Saudi Arabia oil fields, global crude oil production would be declining. Saudi Arabia is heavily dependent on its huge, but old, Ghawar field. That field is undergoing emergency resuscitation. Several experts have expressed doubts that it can sustain even current production for a prolonged period. (If crude oil is extracted from an oil field too rapidly, the system collapses and production declines to a small fraction of its pre-collapse rate.) Were the population of the developed world to increase by a factor of five, and if oil demands from the developed world were to increase accordingly, world crude oil production would decline permanently and rapidly. (See EIA Monthly Energy Review, "Table 11.5. World Crude Oil Production, 1960-2006.")
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~ REFERENCE LIST: ~
95B1 F. O. Balogun, "Adjusted Lives: stories of structural adjustment," Trenton NJ (1995) p. 80.
96C1 Catherine Caufield, "Masters of Illusion: the World Bank and the Poverty of Nations", Henry Holt, New York (1996).
97R1 Carole Radoki, "Global Forces, Urban Change, and Urban Management in Africa," in Radoki, Urban Challenge (1997) (See Charles Green, editor, "Globalization and Survival in the Black Diaspora: The New Urban Challenge" (1997).
00B1 Deborah Bryceson, "Disappearing Peasantries? Rural Labor Redundancy in the Neoliberal Era and Beyond," in Bryceson, Christobal Kay and Jos Mooji, editors, Disappearing Peasantries? Rural Labor in Africa, Asia and Latin America, London (2000) p. 304-305.
00B2 Patrick J. Buchanan, "Buchanan on Trade", Letter to the Editor, Wall Street Journal (8/23/00).
00J1 Leon James, Road Rage and Aggressive Driving, Prometheus Books (2000).
01W1 Mark Weisbrot, Dean Baker, Egor Kraev, Judy Chen, "The Scorecard on Globalization 1980-2000: Twenty Years of Diminishing Progress", Center for Economic and Policy Research, 1015 18th Street NW, Suite 2000, Washington DC 20036 32 pp. (2001) www.CEPR.NET (CEPR@CEPR.NET).
02H1 Jon E. Hilsenrath, "Globalization gets Mixed Report in U.S. Universities", Wall Street Journal (12/2/02).
03J1 Fatoumata Jawara, Aileen Kwa, Behind the Scenes at the WTO: the Real World of International Trade Negotiations
03M1 Scott Miller, "WTO Trade Negotiations Hit Snag," Wall Street Journal (3/18/03).
03U2 UN-Habitat (The UN's Human Settlement Program) "The Challenge of the Slums: Global Report on Human Settlements 2003," London (2003) (the first truly global audit on urban poverty).
03W1 David Woodward, Nick Drager, Robert Beaglehole, Debra Lipson, "Globalization, Global Public Goods, and Health", Department of Health in Sustainable Development, World Health Organization, Geneva Switzerland (2003) 10 pp.
03W2 Ulf Wijkstrom, Rebecca Metzner, "Fisheries", Chapter 7, pp. 195-211 in Jelle Bruinsma, editor, World Agriculture: Towards 2015/ 2030, UNFAO (2003) Earthscan Publications, London, 432 pages.
04B1 Elizabeth Becker, Edmund L. Andrews, "IMF report says U.S. debt a threat to global economy", New York Times (1/8/04).
04J1 Jon Jeter, "A Smoother Road to Free Markets: Chile's Success Makes the Case For State Involvement in Economy", Washington Post (1/21/04).
04L1 John Lyons, "Rich vs. Poor Gap Thwarts Latin American Gains", Wall Street Journal (4/21/04), p. A16. (Reporting on a major new UN report).
04P1 Population Action International, "How Demographic Transition Reduces Countries' Vulnerability to Civil Conflict" in PAI's publication The Security Demographic: Population and Civil Conflict After the Cold War (2/11/04). http://www.populationaction.org/resources/factsheets/factsheet_23_securityDemog.html.
04P2 John Perkins, "Confessions of an Economic Hit Man", Berrett-Koehler Publishers (2004) 264 pp.
04S1 Charles Schumer and Paul Craig Roberts, "Second Thoughts on Free Trade", Op-Ed in New York Times (1/6/04).
04S2 Bruce Sundquist, "Inefficiencies in the U.S. Health Care System - Identifying and Fixing Them," Edition 3 (August 2004) http://home.windstream.net/bsundquist1/hci.html
05G2 William Greider, "America's Truth Deficit", New York Times (7/18/05).
05M1 George Monbiot "I'm With Wolfowitz: Have we forgotten what the World Bank is for?" The Guardian, (4/5/05)
06G1 Steven Greenhouse and David Leonhardt, "Corporate profits rise as workers' pay stalls," Pittsburgh Post Gazette (8/28/06) p. A1.
06R3 Rodrigo de Rato (Managing Director, International Monetary Fund), "Ensuring Global Economic Stability," Börsen-Zeitung (9/12/06).
06S1 Bruce Sundquist, "Large-Scale Computerization - The Cure for the Health Care Crisis," Edition 4 (May 2006) http://home.windstream.net/bsundquist1/hcc.html
06U1 (Unknown) "Wealth Grows, but Health Care Withers in China," New York Times (1/23/06).
06W1 Paul Wiseman, "UN disputes US position on free trade's impact on poverty," USA Today (7/5/06).
06W3 Mark Whithouse, "As Rates Climb, U.S. Foreign Debt Shows Its Teeth," Wall Street Journal (9/25/06) p. A1.
07H1 Thaddeus Herrick, "U.S. Infrastructure Found to Be in Disrepair," Wall Street Journal (5/9/07) p. B4.
07M1 Vladimir Masch, "A Radical Plan to Manage Globalization," BusinessWeek.com (2/14/07).
08S1 Bruce Sundquist, "Globalization: The Convergence Issue," Edition 16 (April 2008) http://home.windstream.net/bsundquist1/gci.html
08S2 Bruce Sundquist, "Human Co-Option of Net Primary Production -The Photosynthetic Limits to Global Carrying Capacity," Edition 2 (April 2008) http://home.windstream.net/bsundquist1/gcia.html
08S3 Bruce Sundquist, "The Informal Economy of the Developing World: The Context, The Prognosis, and a Broader Perspective," Edition 2 (December 2008) http://home.windstream.net/bsundquist1/ie.html
08S4 Bruce Sundquist, "Sustainability of the World's Outputs of Food, Wood and Freshwater for Human Consumption," Edition 1 (March 2008) http://home.windstream.net/bsundquist1/su0.html
08S5 Bruce Sundquist, "Terra Preta - An Inexpensive, if not Profitable, Solution to the Problems of Global Warming and Developing World Hunger," Edition 1 (September 2008) http://home.windstream.net/bsundquist1/tpgw.html
08S7 Louise Story, "Home Equity Frenzy Was a Bank-Ad Come-True," New York Times (8/15/08).
09B5 Lisa Bannon, Bob Davis, "Spendthrift to Penny Pincher: A Vision of the New Consumer," Wall Street Journal (12/17/09) p. A1.
09G1 Mark Gongloff, "Jobless Recoveries: The New Normal, It Seems," Wall Street Journal (12/04/09) p. C1.
09S1 Bruce Sundquist, "The Controversy over U.S. Support for International Family Planning - An Analysis," Edition 9 (June 2009) http://home.windstream.net/bsundquist1/ifp.html
09S2 Bruce Sundquist, "Strategies for Funding Family Planning, Maternal Health Care, and Battles Against HIV/AIDS in Developing Nations as Options Expand, Political Environments Shift and Needs Grow: A Critique," Edition 5 (November 2009) http://home.windstream.net/bsundquist1/fund.html
10B1 Moriah Balingit, "Boomerang effect is a trend for U.S. Families," Pittsburgh Post Gazette (3/19/10). (Based on a Pew Research Center Study titled "The Return of the Multi-Generational Household.")
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