“We have the means to impose the state of the world” said World Economic Forum chairman Klaus Schwab, sounding ever more like Ernst Stavro Blofeld, at the Davos forum this week. In that remark, he summed up precisely what is wrong with globalization – it leads inexorably to an unending global monopoly. Even the totalitarian Oceania, Eurasia and Eastasia of George Orwell’s “1984” are more libertarian and economically efficient.
The free trading idea of globalization that we were sold in the 1990s is an attractive concept. Under it, tariff and non-tariff barriers against products from other countries are reduced worldwide, and global sourcing therefore flows in a Ricardian way to the countries where it can most efficiently be carried out. There seemed no reason why activities requiring low labor costs, such as textile manufacturing, should not migrate to the vast pool of low-wage labor that was China.
In the Ricardian formulation, the world economy would optimize and poor country wages would be brought up towards rich country wages, but the superior skill levels and wealthy local consumer markets of rich countries would always maintain a differential, and the greater global growth produced by this new efficiency would ensure that even in rich countries there were few losers and a myriad of winners.
In the Ricardian model, government is small and non-regulating, and would continue to be so in a globalized world. The only international institution necessary would be the World Trade Organization, which would act as a neutral umpire in trade disputes, coming down generally on the side that freed up trade and reduced regulation. Without international institutions, there would be no additional regulations or constraints on economic (or other) freedoms produced by globalization, so it would intrude little into economic decision-making.
Naturally, some companies’ globalized sourcing networks would be complex, but in this world of free trade, zero regulation and universal peace, that would not matter – complex supply chains would impose only modest additional costs on those using them and trade would flow through them smoothly.
A pretty picture, isn’t it? Unfortunately, since 1995 it has become increasingly clear that the globalization system we have does not work like this. This column first wrote in 2010 that globalization was about to go into reverse. In retrospect it was late, not early, in doing so – the defects in the globalization that we had were already making themselves abundantly clear.
For one thing, the Ricardian equations do not work very well in the real world, with communication between countries so easy. To take one example: I forecast in the early years of this century that the universal tendency to outsource software engineering to India would result in a hollowing-out of the software industry. Indian software engineers, well trained by their colleges and gaining experience monthly, would not remain restricted to the lowly jobs to which they had been assigned but would “climb the value chain” and pretty soon would be eating the lunch of the fat and happy Americans who had thought themselves entirely safe in the uppermost and most lucrative branches of the profession.
The above example is one where all parties keep to the strictest rules of international free trade; even in that case, Ricardo is far less true than it was in 1817. In the real world, especially one where opportunities for cheating have been maximized by global instantaneous communications, global free trade is in reality by no means free. That should not be surprising. China, as one major and increasingly aggressive participant in the world trading system remains a one-party Communist dictatorship. If one major participant does not even believe in the values underpinning the world trading system, how can it be expected to operate by its rules, and how can that system be expected to function?
Even beyond China, no country (beyond perhaps the tiny and globally insignificant exception of Singapore) is managed today by a high-minded and free-trading equivalent of Palmerston or Gladstone. In a world where governments are gigantic, sucking up a percentage of their national output that very often exceeds that of the entire private sector, the Whiggish rules of Victorian free trade are simply inapplicable. If governments do not take a “hands-off” approach (and to some extent, they cannot, given their bloated share of the economy) then Adam Smith and Ricardo must be thrown out of the window.
There are two other factors involved. In a Ricardian world, there are no international agencies, or at least none with any power. However, today we have powerful agencies at the world level, and still more at the regional level, where the European Union seeks to cartelize international trade because, now that Britain is no longer a member, the Kaiser Wilhelm – Mussolini – Third Reich – Charles de Gaulle view of international trade as a game that can be won by cheating and cartelization is dominant there. Krupp, Thyssen and Istituto per la Ricostruzione Industriale were not capitalist organizations, and they still represent the dominant intellectual influence on the EU bureaucracy’s view of trade. Still more damaging are global outfits like the World Economic Forum itself that attempt to impose themselves on the global economy; to they extent they can do so the world becomes increasingly a one-party state, with no tolerance of deviationism.
The other equally disquieting factor is the rise of “woke” corporatism. If companies are forced by their auditors and regulators to follow “ESG” policies then they are no longer capitalist entities, but slaves of the fashionable leftist ideology. This is especially the case in the area of “climate change” where without adequate evidence, governments have taken to imposing unspeakably costly regulations on the global economy, enforcing them both directly and through the corporate sector. The firing of a senior HSBC climate change skeptic, for giving a speech that had already been cleared by the system, is intellectually a total disgrace and shows what we are getting into.
Without a globalized world, if we don’t like the wokie conformity that is being enforced on us by the West, we can always move. India is showing a refreshing degree of opposition to the Western consensus and is a sufficiently dynamic economy and sufficiently capitalist that an intelligent person could always find a way to prosper there. There are no doubt other alternatives of varying degrees of attractiveness, and there is always the hope that one or other of the Western countries will become decently run in a few years (maybe even the United States – keep an open mind, pigs MIGHT fly!)
But in a world that is truly globalized, we will all be poor because of the appalling economic nonsense and insane taxation that is inflicted on us, and we will have no way out. Even in Orwell’s dystopia, if Oceania became intolerable, you could always escape to Eurasia, where you could gain favor by expressing an inordinate enthusiasm for Emmanuel Goldstein. In a fully globalized world, with world regulation even if not yet technically world government, Big Brother will be watching you wherever you go, and there will be no escaping the Two Minute Woke!
For more of my thoughts on the WEF’s agenda, you can preorder the upcoming “Against the Great Reset” where I wrote an essay titled “The Anti-Industrial Revolution”.
(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)