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Restart for Globalization? What It All Means for Us

By Shlomo Maital


       The rise of rightist leaders and governments worldwide (UK, Europe, US) who oppose globalization (free unhampered movement of goods, services, people, information, money and technology) has brought a great deal of new thinking. Trump wins, Brexit, Renzi resigns, Austria’s far right barely loses, Merkel turns right, LePen is on the rise, Putin makes trouble everywhere… Globalization seeks win-win. Nationalism seeks “we win/you lose”… which can turn into lose/lose easily.    

     Global world trade and finance seem headed for some sort of restart: What are the main implications for people everywhere? What form will this restart of globalization take? Will the free movement of goods, services, people, information, money and technology be impaired? Amidst the enormous fog of uncertainty shrouding the world economy at present, can we make some reasonable predictions? This and several following blogs tackle this daunting task.

     Background: Globalization really began on July 1-10, 1944, at a resort called Bretton Woods, New Hampshire, U.S. at Hotel Mt. Washington. The U.S. convened world economic and financial leaders and in 10 short days redesigned the architecture of the world economy, even as World War II raged.  Here globalization was born: the General Agreement on Tariffs and Trade, which in negotiated rounds lowered trade barriers; the World Bank, which funded infrastructure in poor countries; IMF, the financial fireman; and others.   The goal: first, lower tariffs and trade barriers, to make trade an engine of growth. America opened its markets, and emerging nations benefited greatly. So did the U.S., in part, by gaining a flood of low-price consumer goods; while losing manufacturing jobs. The world gained, with trade becoming the engine of growth; trade grew twice as fast as world GDP.  

     The gains for the US from globalization are amorphous, the losses are tangible and identified with specific people and groups. Globalization brought enormous inequality, with a few big winners and a lot of small losers. Nobody found a way to compensate the losers, or even to try. It was a ticking time bomb. (The illustration above mentions ‘inequality’..nowhere). Wealth concentrated in very few hands. And inevitably it exploded. The losers, blue collar workers, low-to-middle class wage-earners, now take their revenge at the polls. Hence: Trump. And that revenge has just begun.

       Who gets it? Which of the experts has begun to figure this ‘restart’ out? Start with Larry Summers, Bill Clinton’s Treasury Secretary, former Harvard President, and the nephew of two Nobel Economics Laureates, Paul Samuelson (MIT) and Kenneth Arrow (Harvard).   In the New York Times, Summers make these observations:

   “This renaissance of nationalism and resistance to globalization appears to be universal, and not the exclusive preserve of either the left or right. It seems to stem from a profound sense on the part of many groups that their lives are buffeted by forces beyond their control. As people’s distance increases in a geographic sense, in a cultural sense, and in the sense of a lack of shared identity, they lose confidence in their leaders’ abilities to protect them. Insecurity is begetting atavism (the reappearance of bad traits that we thought had disappeared).   These trends pose dangers. For all the problems and challenges, the past 70 years have been a period of unprecedented progress in increasing human emancipation, prosperity, life expectancy and in reducing violence. All of this would be at risk.     We need to redirect the global economic dialogue to the promotion of “responsible nationalism” rather than on international integration for its own sake. … These and other statistics indicate that the United States and Europe are just one recessionary shock away from being caught in a deflationary trap. Japan has been stuck in one for more than a decade, with expectations of decreasing prices prompting consumers to delay spending and save money. Assuring adequate pressure for stimulus needs to become a priority for the Group of 20, to precaution against deflation. The events of 2016 will be remembered either as a point at which we began to turn away from globalization or the one at which the strategies of globalization began to be reoriented away from elite and toward mass interests. As we make our choices over the next few years, the stakes are very high.”

   Top priority, for Summers: Prevent a global recession, as Trump pushes interest rates higher (helps the rich make even more money) and this spreads worldwide, and as trade stops growing and with it, GDP.  

     Implication: In your planning, think about a scenario in which there is renewed global recession. Have you set aside enough? For those who know history: In 1932 the U.S. imposed a tariff on foreign imports, the Smoot-Hawley tariff, bringing retaliation, shrinkage of trade…and ultimately, the Great Recession.  

What If Technology Does Destroy Jobs?

By Shlomo Maital


Larry Summers

   Larry Summers was Treasury Secretary under President Bill Clinton, President of Harvard, and is one of the world’s top macroeconomists. In a recent New York Times article on how technology is disrupting the world, the author recalls how Summers spoke in November at a conference, about his undergraduate days at MIT in the 1970s. Nobel Laureate Robert Solow made the case then that new technology boosts productivity and overall creates jobs, employment and wealth. Sociologists at the time responded that new technology often destroys jobs and wealth.

   “It sort of occurred to me,” Summers recalled, “suppose the ‘stupid’ people (sociologists) were right, and the ‘smart’ people (economists) were wrong. What would it look like?   Well – pretty much how the world looks today.

     Uber is eliminating taxi-driver jobs. Internet news is destroying print journalism jobs. Digital education will soon eliminate my job (as professor).   Long ago, software made the entire mid-level managers’ jobs (focused on processing and interpreting data) redundant. Add to that globalization and world trade, which led America to outsource its manufacturing to Asia.  

       What if technology really does eliminate jobs? What if, like Finland and Switzerland, we will need to consider providing a basic minimum living wage for everyone, when unemployment becomes widespread? (The referendum in Switzerland on this idea was soundly defeated…but nonetheless, the mere fact it happened is important).   What if in future, work itself will be a huge privilege and a luxury, granted only to a very few highly skilled, highly productive people who somehow are not made redundant by very smart machines?  

       The late MIT Dean and Professor Lester Thurow, who passed away recently, liked to say that sociology trumps economics. If sociology is about how people live and work together, and economics is about how money and capital procreate and proliferate,   then surely he was right. Perhaps it is time that economic policy should be shaped by the sociologists.

Has Capitalism Run Out of Gas?

By Shlomo  Maital

                car wreck            

  Capitalism – free market economics – has run out of gas.  Here is why.

   We continue to blame the ongoing financial crisis. But in the U.S. that ended a while ago, and American banks have cleaned up their balance sheets, and J.P. Morgan has even agreed to pay a $13 b. fine (a tiny indication of how much money they’re making anyway).   But the ‘recovery’ is stalled, the government shutdown made it worse, and a nagging question arises: Has capitalism run out of gas?

   As New York Times columnist Paul Krugman asks in his latest column, “what if the world we’ve been living in for the past five years [unemployment, stagnation, shrinking trade] is the new normal? What if depressionlike conditions are on track to persist…but decades?”

    U.S. household debt is again at record levels and continues to rise, as Americans try to maintain living standards despite stagnant incomes, by borrowing – even though businesses are deleveraging (shedding debt).  GDP growth is anemic. 

    Krugman cites economist Larry Summers, who told the IMF’s annual research conference that even WITH the housing bubble, U.S. economic growth was not that great –let alone without it. 

    What is going on?

    I think the answer is clear.   With nearly 75 per cent of GDP coming from personal consumption, America’s capitalist system needs people to keep on spending and spending, to buoy the economy.  But we are beginning to wake up to a bitter fact – we work harder and harder, longer and longer, to earn more and more, to buy stuff that brings us no satisfaction or sustained wellbeing, and lose twice – we lose quality time with our families, and find the price we pay for the resulting income,  the useless stuff we cram into our closets,  brings no compensation.  Two-time losers.

     There is a solution.  If we could replace some of the wasteful personal consumption with useful business investment, in infrastructure, schools, highways, fast trains, public transportation, universities, airports, fast broadband —   all the stuff that could repair America’s obsolete  infrastructure —  the economy would indeed grow.  But businesses are simply sitting on their cash, holding it mostly abroad, seeing no reason to invest if consumers are not spending much.  It’s a doom loop closed circle.  China resolved it by having the government undertake infrastructure investment.  In America this is called ‘socialism’ and even Democrats dislike it.  Too bad.

     We need to rethink the whole capitalist system.  When it runs out of steam, because people tire of buying the same old stuff and nothing really new comes along,  we are all in trouble.  Nothing any individual does can help much.  We need to get together, rethink the system, and invent a new one that truly does focus on the wellbeing of individuals and families, on the question, what truly brings sustained happiness?  Here is a clue – you can’t find it in a shopping center.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital