By Jeremy Warner
Telegraph UK
A number of years ago, a story went around that sprouts were being transported from across Britain to an East Anglian airport, from where they were sent to Poland for washing and packaging before being air-freighted back again for sale in supermarkets located but a few miles from where they were grown.
This is an extreme example of the sometimes insane supply-chain dynamics of modern-day globalisation, but it speaks loudly to widespread disillusionment with the once-unquestioned blessings of free trade. From the Occupy Wall Street and Tea Party movements of the US to the renewed rise of populist politics in Europe, the backlash is everywhere to be seen.
In real terms, Americans are on average no better off than they were 30 years ago; in Britain, the Institute for Fiscal Studies says that our real disposable incomes are in the midst of a 14-year freeze. Vast tracts of gainful employment in textiles, potteries, shoe-making, machine tools and many other industries have disappeared, to be replaced by… well, not very much at all outside the now languishing financial services industry and the housing market.
The West’s competitive advantage, even in hi-tech industries such as pharmaceuticals and aerospace, is being fast whittled away too. The welfare and health entitlements to which we have become accustomed look ever more unaffordable, while the final-salary pensions that workers could once expect as reward for a lifetime of service are now confined to the public sector – and those too will surely be gone within 10 years. It is small wonder that the benefits of free trade are now so widely questioned.
Critics of globalisation, such as Joseph Stiglitz, the Nobel laureate in economics, used to focus on the supposed harm that Western-inspired trade liberalisation was inflicting on the developing world. Few would these days think this the correct way of looking at the problem.
On the contrary, by opening up the global economy to Asia, Latin America and Eastern Europe, the West seems to have unleashed a doomsday machine which threatens ever-greater destruction of its own living standards. After a brief number of years in which globalisation made everything seemingly cheaper, the terms of trade have moved badly against the West.
Sure enough, the world as a whole is getting a whole lot richer. In the past decade alone, the global economy has doubled in size. But most of the benefits of this explosion in activity have gone to the developing world and, in the West, the already rich, highly educated and talented. The wealth divide has widened to record levels almost everywhere.
Western business leaders embraced globalisation not just because it opens up new markets, introduces new ideas and weeds out unproductive, protected sectors, but because it allows for lower production costs and so bigger profits. It doesn’t seem to have occurred to them that if you don’t provide Western consumers with jobs, they’ll be priced out of the market and the mother economy will wither and die.
The principles of free trade are the same for nations as they are for individuals. Rather than trying to produce everything we need to live, most of us choose to work in quite specialist forms of employment, the product of which we sell to others. We then use the proceeds to buy in other goods and services. Nations ought similarly to derive a collective economic benefit by specialising in the things they do best and then trading with others for the rest.
But the system only works if everyone plays by a common set of rules and standards. Nations won’t live happily together if they don’t. That’s what has gone wrong with globalisation. Many have just copied from the West and used cheap labour for competitive advantage. Adam Smith’s “invisible hand” cannot operate efficiently in a world of wildly different labour standards, attitudes to the rule of law and manipulated currency values. Even Smith, the father of free market thinking, recognised that markets must be policed if they are to function properly.
The Chinese are not going to get serious about intellectual property rights until they are inventing more things than they steal, nor are they going to engage in worthwhile currency reform until they have spirited every last job possible from the once vibrant West. It might be argued, as it sometimes is by Chinese officials, that they are levelling the playing field after several hundred years of relative deprivation. That’s surely the way it is meant to work, with pursuit of self-interest working for the greatest common good. The West thought it could benefit from globalisation; it ill becomes advanced economies to complain now that they are losing from it.
All the same, the world needs urgently to embrace new forms of multi-lateralism and co-operation if it is not to slip back into an age of protectionist infighting. The free market system has become distorted to the point of virtual collapse. Unsustainable trade imbalances are the major underlying cause of today’s rolling series of debt crises in advanced economies.