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Globalisation and Inequality

This thinkpiece is opinion with some small basis in researched reality, but please don’t take this as definitive. All my own views.

The argument being made in the US post-Trump and in the UK post-Brexit is that the forces of globalisation and free trade have led to increasing inequality, and that’s what the working class of these countries is getting upset about – their increasing distance from the “elite” that are perceived to benefit from the globalisation at the cost of the working class.

Except what’s happening here – to put it in Thomas Friedman’s The World is Flat terms – is that the playing field is flattening, at least at the lower end of the income distribution. This means more than just bringing the developing countries up to the standard of the developed countries – it’s also causing the developed countries to drop down a little, or more rather a reversion to the mean.

The way the working class in developed nations are feeling the pain is an inevitable consequence of this globalisation – the advantages they had were only ever relative, because for all that there’s said about equality, it was never the case that developed economies were “equal” – it was entirely in their average lying well above the global average.

But now… it’s not so much. The working class in developed economies is being levelled with the working class in other economies. The working class of developing economies are coming closer to equal footing as borders come down in the pursuit of the dollar. Immigration makes this even more so, where those willing to work for a low wage by developed economy standards are comparatively better off by their personal standards because it’s a high wage by their own standards; this only starts to break down when the wages in their home countries lift enough that the differential isn’t worth it.

Inequality has always been there; inequality, globally, has gotten lower. However, where it was also unequally spread – where some countries had less internal inequality – it’s now being more equally distributed around the world as a global population is included and free trade and movement of labour makes the production of goods anywhere the same.

What hangs at the core of this globalisation? It is the unending drive of capitalism to grow beyond natural growth rates – to eke out any advantage that helps to move profit forward faster and faster, never satisfied with statsis; in the stock market, you’re either growing or you’re failing. Capitalism inherently doesn’t serve those with labour to offer – it serves those with capital, and that is of course the rich, especially those in rich countries. It shouldn’t be a surprise that it leaves the working class behind, but for the great moderation that seemed to exist for 50 years between the Great Depression and the 1980s when profit growth and wage growth tracked together.

The great “liberalisations” of the 80s however seemed to end that – just as technologies which reduced the need for labour significantly increased in the form of computers and robotics. Entire classes of professions were decimated as computers took repetitive tasks and performed them without complaint or demand for pay; it was hailed as productivity improvements and served to benefit those with capital most of all – at a time when the historic covenants of wealth sharing and redistribution came down in the developed world and “greed is good” was a line said with a straight face. Since then we see the stagnation of wage growth regardless of all the improvements in productivity and the endless increases in profitability where to the cashed up victors went the spoils.

Where to from here? Trump won’t be the solution; he is ultimately one with capital for whom it is not advantageous to share. As the developed world lurches towards nationalist and conservative standpoints in the face of their own favoured globalism, we’re left to wonder what the answers are. Economically liberal conservatives don’t have the answers – or at least not answers that will change the world for the developed nations working classes in a meaningful way despite all their promises.

Australia’s own conservatives with their jobs-and-growth mantra appear to be failing to bring about either, but still somehow lie ahead in public perceptions because the weight of history weighs on the perceptions. The view of the left as poor economic managers is belied by the truth in the data, but perceptions are hard to change. In the mean time, nationalist movements are given freedom to run the board as the reality of immigration meaning global competition for the working class turns into an ugly world view that doesn’t actually address inequality, but does give cover for those with the money to blame something else.

Globalisation and inequality are not inextriciably linked, but there’ll be plenty to tell you different.

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