When things are going wrong the first reaction of those in power is to increase the intensity of what they are already doing. This results in company CEOs being dismissed and governments falling as it becomes obvious to everyone else that problems are turning into disasters. So it is with globalisation.
In 2008 the global linkage of giant banks caused the global financial crash. The reaction from the regulators was not to decrease the intensity of the linkage. The reaction to the financial crash was to continue the linkage but to regulate the quality and amount of assets more closely. As a result of this failure to address the issue of international interdependence local banking crises can still spread globally.
In 2020 we are facing another major recession as a result of globalisation. This time it is due to the diversified supply chains of multinational companies. China has sneezed and the rest of the world has caught a cold. It was utterly insane for multinational corporations to become dependent on Chinese production.
Of course the Multinationals claim that trade will liberate the Chinese but it is obvious from Russia and China that making communists rich does not make them democratic, it makes them National Socialist (socialism with capitalist characteristics). Given that what has happened in Rusia and China is obvious why are people claiming "liberation through trade" as the answer to totalitarianism? The answer is that Multinationals will say anything profitable and do not care for democracy, their bosses are only interested in the next 2 years of cash so the "prosperity brings liberation" argument was only ever a diversion.
Prosperous National Socialists are far more dangerous than communists ever were.
We will recover from the coming recession but the problem of globalisation will not go away. The Multinational Corporations will slowly be acquired by the National Socialists. They have already acquired a large holding of US corporations - see Should we allow the Chinese to buy any US company they want?. European companies are also being gobbled up.
When multinational corporate bosses whisper in Liam Fox's ear that what is needed is greater globalisation and no barriers to business many of them are really just relaying the news from Beijing.
Completely free International Trade is also disastrous because it focuses economic activity in areas of greatest purchasing power so leaving other areas of the world in regional economic poverty. This happened with the EU Single Market and was one of the main forces behind Brexit.
The simple truth is that moderate International Trade is a very good thing. When International Trade was moderate finance ministers and globalising economists were praised as messiahs for extending it. It is now obvious that we have passed into a level of International Trade where it is becoming unstable and politically dangerous. Excessive International trade is becoming a very bad thing. The reaction of yesterday's messiahs is to continue doing what they did before without realising that they are now part of that very bad thing.
Let us hope that we roll back globalisation of trade before this becomes impossible. If we pass the point of no return we will all become Chinese Capitalists and perhaps the greatest disaster ever to have befallen humanity will have occurred - just look at China.
See We need to talk about China.
Postscript: Although it is received wisdom that the 1929 slump was caused by a sudden reduction in International Trade what is not generally appreciated is that the slump was caused by the inherent instability of International Trade.
After the slump, in the period from 1932-39 when the world was further closing its doors to international trade (period between Great Depression and WWII in graph above and blue line in graph below) GDP growth was actually stronger than before.
The slump was due to the instability of global trade and national prosperity recovered after that trade was halved. Our economies became stable until the next rise in International Trading that began in the 1970s. There is a straightforward lesson from history: intensive International Trade carries risks that are not worth taking.
See Globalization and Global Trade for the distinction between globalization and what the Multinationals call globalization.
27/02/2020
In 2008 the global linkage of giant banks caused the global financial crash. The reaction from the regulators was not to decrease the intensity of the linkage. The reaction to the financial crash was to continue the linkage but to regulate the quality and amount of assets more closely. As a result of this failure to address the issue of international interdependence local banking crises can still spread globally.
In 2020 we are facing another major recession as a result of globalisation. This time it is due to the diversified supply chains of multinational companies. China has sneezed and the rest of the world has caught a cold. It was utterly insane for multinational corporations to become dependent on Chinese production.
Of course the Multinationals claim that trade will liberate the Chinese but it is obvious from Russia and China that making communists rich does not make them democratic, it makes them National Socialist (socialism with capitalist characteristics). Given that what has happened in Rusia and China is obvious why are people claiming "liberation through trade" as the answer to totalitarianism? The answer is that Multinationals will say anything profitable and do not care for democracy, their bosses are only interested in the next 2 years of cash so the "prosperity brings liberation" argument was only ever a diversion.
Prosperous National Socialists are far more dangerous than communists ever were.
We will recover from the coming recession but the problem of globalisation will not go away. The Multinational Corporations will slowly be acquired by the National Socialists. They have already acquired a large holding of US corporations - see Should we allow the Chinese to buy any US company they want?. European companies are also being gobbled up.
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| The Chinese have been buying business assets. |
Completely free International Trade is also disastrous because it focuses economic activity in areas of greatest purchasing power so leaving other areas of the world in regional economic poverty. This happened with the EU Single Market and was one of the main forces behind Brexit.
The simple truth is that moderate International Trade is a very good thing. When International Trade was moderate finance ministers and globalising economists were praised as messiahs for extending it. It is now obvious that we have passed into a level of International Trade where it is becoming unstable and politically dangerous. Excessive International trade is becoming a very bad thing. The reaction of yesterday's messiahs is to continue doing what they did before without realising that they are now part of that very bad thing.
Let us hope that we roll back globalisation of trade before this becomes impossible. If we pass the point of no return we will all become Chinese Capitalists and perhaps the greatest disaster ever to have befallen humanity will have occurred - just look at China.
See We need to talk about China.
Postscript: Although it is received wisdom that the 1929 slump was caused by a sudden reduction in International Trade what is not generally appreciated is that the slump was caused by the inherent instability of International Trade.
After the slump, in the period from 1932-39 when the world was further closing its doors to international trade (period between Great Depression and WWII in graph above and blue line in graph below) GDP growth was actually stronger than before.
See Globalization and Global Trade for the distinction between globalization and what the Multinationals call globalization.
27/02/2020
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