The Economic Pitfalls of Globalisation

When German Chancellor Angela Merkel invited former United States President Barack Obama to Berlin last October 2016, it was more than just a reunion of old friends. The fact that the venue was the Berlin Wall showed it was a forum to defend globalisation from the rising wave of nationalism.

But globalisation did not fell the Berlin Wall. It was the spirit of nationalism; pro-democracy acted on a movement where their voices could be heard. Ironically it was globalisation that built the Berlin Wall as a way to isolate a Communist bloc from West Germany’s vision of embracing liberties, freedoms and exploring regional opportunities.

Communism failed because its advocates built too many structures, restrictions and boundaries. Globalisation sought to tear down those structures, relieve the restrictions and open up the boundaries in order to monetize the capitalist ideals of comparative cost advantages and economies of scale.

Globalisation resulted in jobs moving to regions where comparative cost advantages and economies of scale existed but so did extensive human rights violations, lowest standards of living and highest levels of government intervention.

While globalist economies prospered through lower costs, eventually so did the host country. Popular offshoring destinations such as China and India benefited from gaining access to technology which opened new growth industries and narrowed income differentials.

But the strategic partnership also tightened competition for jobs and encouraged migration to developed economies.

Global champions like Merkel and Canada’s Justin Trudeau validated their countries’ liberal immigration policies by pointing out lower birth rates and the need for more skilled labour in key industries such as automobile manufacturing, technology and healthcare.

But the truth is harsher than fiction. Migrants are not working. It is still local, home grown talent that persevere on the floor of Mercedes Benz, Siemens and Bayer.

Immigrants are simply taking advantage of Western Europe’s generous welfare programs. The welfare state is becoming unmanageable across Europe that governments end up accounting for the difference between expected standard of living and the limited options for realising that standard of living.

On the other side of the world, the ideals of globalisation appear to have made it the new Communist thought for the modern world. It has spurred China to go into an incredible spending spree developing infrastructure across the Pacific, Europe and Africa worth billions of dollars.

China has adopted the capitalist mind-set of accessing natural resources by “awarding” recipients of its “development assistance program” billions of dollars in financial aid.

But at a time where economic bubbles are present and the threats of war are present in the Pacific and the Persian Gulf, will the investment be worth it?

If Communism failed because it was too restrictive, globalisation will fail because it expanded too fast without regard to its own shortcomings.