Global market forces

Globalised markets force industrialisation and urbanisation, which destroy traditional communities and interrupt family relationships, as the customs that nourished local communities are disrupted.

People become “independent choosers” responding to a market that provides limitless choice of consumer good. They can meet their needs without worrying about anyone else. This fosters selfishness, a basic human condition.

The global market brings a drive for efficiency that separates people into winners and losers. Some succeed, but many are forced into precarious employment with very low pay and harsh working conditions. They are overwhelmed and isolated, without reliable personal networks to provide assistance in time of trouble.

People who struggle are forced to look to the state for assistance, but they are faced by an impersonal, uncaring, rules-driven bureaucracy, that leaves them feeling powerless, frustrated and resentful.

The modern urban environment gives people immense social and personal freedom. The successful people flaunt their freedom by living promiscuous lives without any moral accountability. Those who have missed out express their frustration and resentment in aggression, abuse and undisciplined behaviour that makes their situation worse.

Once outside of traditional communities, customs and social mores that constrained behaviour seem hypocritical and repressive. They are replaced by standardised, impersonal laws developed and enforced by human governments. Despite the promise of freedom, the state has to become more and more involved in intimate personal affairs. Legal and political solutions are needed for issues that were once resolved at a local level.

Leaders claim that all people are free and equal, but the drive for efficiency creates a new meritocracy that directs the economy and society. They have no obligation to care for others, except from a distance, through donations to “caring organisations”. The winners congregate in wealthy neighbourhoods of prosperous cities. The people with the capacity to organise social and communal support tend to follow them out. The losers remain where they were and are swamped by the global economy without any support networks.

Global Vulnerability

A couple of weeks ago, I listened to a talk on public radio by Nicole Foss of the Automatic Earth. She argues that peak oil and the collapse of the banking system will bring about a collapse of global trade, which will seriously damage the world economy. She had some interesting things to say about how to respond to a decline in global trade, but I think she is wrong about banking failure being the cause.

The modern banking system is rotten, but it will not collapse in the short term. Modern banking has two major vulnerabilities.

1. Bad loans
2. Bank runs

The Global Financial Crisis was caused by bad loans due to poor risk management. The events of 2008 have given the bankers a fright that they will not forget for at least a decade. We are more likely to see cautious lending.

Since the Great Depression, government have understood the dangers of bank runs and now act a lender of last resort to the banking system. They will always intervene to stop bank runs.

Neither of these two vulnerabilities can bring down world trade, so what are the real dangers.

1. War
The uneasy peace that has prevailed since the end of the World War 2 has allowed international trade to flourish. Globalisation has supported a huge increase in specialisation and division of labour that has produced a huge increase in prosperity. If peace that has been enforced by the American Empire falls apart, international trade would collapse and prosperity with it. (The previous long peace was enforced by the British Empire. It was ended by the First World War).

2. Middle East
If the war is centred in the Middle East, and oil supplies are disrupted, the economic crisis will spread even quicker. Peak Oil is unlikely to be a threat to world trade, but war in the wrong place could do more harm.

3 Sovereign Debt
Modern governments have been on a power binge. Democratically elected leaders have to solve every problem that arises in society. Most have already made commitments to expenditure programmes that go beyond what taxation can afford. The gap has been filled by extensive borrowing. The chickens have come to risk in Greece, which lead the way on spending money it did not have. However, the party is still underway in the rest of the world. Profligate governments will eventually collapse under the strain, when the loans dry up. (Peter Schiff says that this would manifest in a blow out of the bond market, which has become the latest economic bubble). A real sovereign debt crisis would cause tremendous dislocation in local economies.

4. Sickness and Plague
Modern medicine has made huge advances, but one vulnerability remains. International travel and transport mean that an epidemic disease can spread round the world in a few days. A serious plague would disrupt travel and transport, as countries put quarantine barriers in place to prevent the spread of sickness and disease.

5. China
The expansion of global trade into China has brought huge benefits to the western world. Party Leaders have now held China together for sixty years, but the stresses caused by rural poverty clashing with the growth of capitalist wealth in the cities. Leadership is currently in the process of being passed to the next generation of leaders, but there is no guarantee that they can keep things on an even keel. The world economy would change dramatically, if we lost access to cheap Chinese clothing, electronics, phones and computers.

I do not know the likelihood of any of these events occurring, but any one would do serious harm to global trade. If several were to occur at the same time, they would reinforce the harm.

The Economic Situation (1) - Globilisation

All over the world, people are uneasy about the economic situation. Their unease is made worse by the diverse prognostications of economists and politicians. Some are saying that things will get worse. Others are saying that the worst is over. This confusion is making people fearful. In this series of posts, I will explain some of the events that will affect the future.

Improved communications and transport over the last few decades have allowed a tremendous globalisation of the world economy. The increased division of labour has resulted in a tremendous increase in production all round the world. Production has moved to the places where it can be done most efficiently. Manufacturing has moved to China, India and South East Asia where wages are lower than in the west. Highly technical tasks have stayed in the devloped countries.

Western producers have an immense supply of cheap capital goods and consumerables to support their activities. People in the West have had the benefit of an endless supply of good quality consumer goods. This has improved their standard of living. The people of rural China have found work opportunties that did not exist before their economy opened up. The only ones to suffer have been blue collar workers in the industries that have moved offshore.

Globalisation of economic production is likely to continue into the foreseeable future.

The increase in the supply of oil will push up transport cost, but the impact on globalisation will only be marginal.

The only thing that could end the benefits of globalisation would be a major war that closed down the major shipping lanes around the world. The world experienced a similar deepening of world trade in the nineteenth century. This was brought to an end by World War 1. In many ways the current globalisation is a continuation of what was cut short by two world wars and the cold war. It would take a major war to bring it to the end, but that does not seem likely soon.

Globilisation

Globalization is not a great conspiracy to harm innocent people, but a part of normal human development. It is the natural outworking of improvements in communication and transport.

Two hundred years ago, everything that a person could consume had to be produced in their village. Only the rich could afford Chinese silk or Indian tea. Life was pretty mean for ordinary people. I would not want to go back to that.

Improved communication and transport now gives ordinary people access
to a vast range of goods and services that our ancestors never dreamed could be possible. At the same time the expanded division of labor has dramatically reduced the cost of most the stuff that we buy, improving the well being of almost everyone.

The people of Detroit are currently feeling pain, but so did the people that made carriages, and harness, when cars replaced horse transport. Change always means pain for some, but we cannot lock history in the past. I don’t like horses that much, so I pleased that we no longer depend on them for transport.

There is nothing that Washington can do to prevent globalization. They cannot stop the Chinese from making television sets and they cannot stop American consumers from buying them if they are cheaper than American made ones. The only way that Washington could stop globalization would be to start a world war that disrupts global transport and communication, but who would want that?

Walmart is not the enemy. If Walmart was not importing cheap goods from China (almost all retailers are now doing the same), the pain being felt by poorer Americans would be much worse. If Americans could only buy American made, they could not afford their current lifestyle.

Americans get upset about their jobs moving to China, but they forget about what the Chinese are giving to them.

Although very poor, the people of China are effectively forced by the Chinese monetary authorities to save about half of what they produce (via an undervalued currency). The Chinese government has channeled those saving into US Treasury bonds. The money then feeds through the American financial system to the credit cards of Americans. The result is that ordinary Americans have been using the savings of the Chinese to pay for their consumer goods. If this pattern stops the Americans will feel as much pain as the Chinese.

So as well as providing Americans with cheap goods that they could not otherwise afford, the Chinese are also providing the savings so that they can buy goods that they cannot afford. They should not be to indignant about them.