Have we reached a globlock?

Growing grievances against globalization may see further progress blocked if left to fester

Globalization seems like a force of nature when considering the expanding rate at which goods circulate around the world. But globalization has also prompted resistance as some have done better than others. Trends suggest that the unequal share of gains from globalization is not likely to change and could instead become more pronounced. With discontent feeding through into the political system, it may reach a point where globalization hits up against its own built-in limits.

Both the growth and demise of globalization could stem from the notion that markets will always grow in size. Successful businesses expand as they search out new customers as well as offer up different products. This process has been given a further boost by the growing ease at which products can be transported. Goods can now be mass produced in one location and shipped across the world, providing benefits in terms of  growing economies of scale. Even online businesses such as Google and Facebook prosper as the reach of their services spreads across the globe.

The expansion of globalization has provided dividends in the form of greater efficiency, higher corporate profits, and cheaper prices. Yet, globalization has attracted increasing levels of unease in Western countries as many workers have missed out with benefits being captured by a shrinking portion of the population. The issue has been further exacerbated as the main means by which economic gains have often been shared (taxes and social spending) have been curtailed in the past few decades.

The bulk of those losing out from globalization in Western countries are made up of low-skilled workers whose jobs can be easily automated or moved elsewhere. While being pushed towards the side lines of the economy, those being left behind still have their political voice. The volume of their resentment has been turned up with the rise of populist in many countries. With their attacks on the status quo, populist threaten to derail the gains from globalization.

This begs the question of whether globalization was always likely to create resistance within democracies and thereby halt its own expansion. The bigger markets and greater levels of automation have resulted in gains that workers had made in the past being eroded away. Manufacturing had opened up a route for low-skilled workers to climb into the middle class (through exports tapping into global markets), but improvements in productivity have meant less need for workers. Transitioning people from manufacturing to the service sector has involved a drop in the level of technology on the job and hence wages.

These trends would still play out even without the economy expanding across borders. But globalization has served to act as an accelerant, both in terms of increasing the rate at which businesses could scale up in size as well as resulting in low-skilled workers (who were already set to lose out from automation) being hit even earlier due to offshoring. The international element also meant that it is the overseas rather than domestic winners from globalization who have been attracting people’s anger.

Governments have also been hampered in their response as globalization has seen its power wane relative to business. Along with their increase in size, the ease at which companies can move operations across borders has resulted in growing leverage over government policy. The resulting business-friendly policies have tended to be good for the global economy but also hampers the ability of governments to deal with the consequences of globalization within their borders.

Populists have stood up as the flag bearers for the anger against globalization as the mainstream political system offers up few solutions. The traditional left/right split in politics is ill equipped to deal with issues such as whether the economy should be more or less open. Politicians may be able to patch together a compromise, but the outlook does not look bright. Without genuine solutions to the economic pain wrought by globalization, the lure of populist will grow and may reach the point at which globalization stalls and begins to be reversed (in Western countries at least).

As much as populism is seen as wayward by those who think that they know better, it is likely to continue as a force in politics if the underlying frustrations that it feeds off remain. And the structural nature of the issues to do with both globalization and the political system means that they will not go away anytime soon. Without any solution in sight, globalization may be stopped in its tracks by, for want of a better term, a democratic globlock. Without enough winners from globalization, we might all lose out.