The dying bird of globalization

Tom Paine famously said of Edmund Burke that he “pities the plumage but forgets the dying bird.” This accusation applies to many free marketers.

I’m prompted to say this by a post from Simon Cooke. He argues against nativist anti-free traders of left and right that:

Trade - free exchange between individuals - is mutually beneficial. It's not a competition between nations, it's not a 'global race', and it's not a winner-take-all game of international treaty poker. The whole bloody point is that both participants gain.

I largely agree. But Simon is making mistake here common to many free marketers. He’s overstating the threat to free markets that come from politics, and understating the extent to which they come from actually-existing capitalism itself. He's forgetting that capitalism looks like a dying bird that is no longer laying the eggs of freer trade.

My chart, taken from CPB data, shows what I mean: Martin Wolf provides other evidence. It shows that growth in world trade has slowed sharply since the 1990s and early 00s. This has nothing to do with nativists like Trump, Le Pen and Brexiters. It’s because of factors largely endogenous to capitalism.

There are several such factors here; as with the productivity puzzle (which might well be related to the trade slowdown) the precise answers are unclear. Among them are:

 - The fast growth in trade in the 90s and 00s was due in part to one-off factors that have faded – such as the reintegration of China and former Soviet bloc economies into the global economy and the reaching of easier free trade deals.

 - The migration of low-wage work to Asia has slowed, in part because rising wages there have reduced their cost advantage.

 - Since the financial crisis firms have feared that even if credit is available now it might not remain so in the next crisis. This has reduced trade, as this is dependent upon finance.

 - Companies have learned that long and complex supply chains are hard to manage, with the result that some have begun to re-shore.

I’d add to this that support for anti-globalization policies (such as tougher immigration controls as well as trade restrictions) are also endogenous to capitalism. They arise from the fact that many people in the west feel that capitalism is failing them – and they are drawing an incorrect conclusion from a reasonable premise.

Whatever the reason, the fact is that, as Michael Roberts says, globalization has “ground to a halt.” Granted, this might change: we’ve seen globalization falter and recover in history. But it might not, at least soon.

My point is, though, that the threats to free trade and the prosperity it brings don’t come merely from silly people believing silly things. They are more profound than that.

Comments

[aragon]

At the risk of flogging a dead horse, this video steam rollers the automation case:

https://www.youtube.com/watch?v=7Pq-S557XQU

The video is 15min long and two years old!

It has it's own Wikipedia entry.
https://en.wikipedia.org/wiki/Humans_Need_Not_Apply

Re: Free Trade
Free Trade, Recardian Equivalence: It is a religion to Economists, free trade fails when one party has nothing to trade with the other, that the other wants, then the first party is excluded from tradeable goods supplied by the second party (or visa-visa).

On Newsnight right wing economists were arguing against the importance of manufacturing because the UK's economic advantages was in services.

This is lunacy, as manufactured goods are physical and need to be physically manufactured and distributed (even by robot).

Services are frequently non-rival and non-exclusive, easily reproducible and low capital intensity. So import substitution is practical for countries, and the market for services tends to be local and culturally specific.

High value difficult to re-produce manufacturing (like Rolls-Royce areo-engines), are how the UK exports.

FIRE Economy
Not banking or insurance which is in any case parasitic, just like fashion which as a result follows the money.

https://en.wikipedia.org/wiki/FIRE_economy
http://www.fireeconomy.com/

The FIRE economy and Neoliberalism has failed.

[Bob]

Good. Looks like you globalists intend on weakening nation states are screwed regardless...

Along with easily implemented immigration controls and banning banks from lending for forex trade ("free movement of capital") fronts, looks like the cult of free trade is collapsing as well...

The argument for unrestricted free trade by Ricardo’s principle of comparative advantage requires a number of stated or hidden fundamental assumptions to work properly, as follows:
(1) domestic capital or factors of production like capital goods and skilled labour are not internationally mobile, and instead will be re-employed in the sector/sectors in which the country’s comparative advantage lies;

(2) workers are fungible, and will be re-trained easily and moved to the new sectors where comparative advantage lies.

(3) it does not matter what you produce (e.g., you could produce pottery), as long as you do it in a way that gives you comparative advantage;

(4) technology is essentially unchanging and uniform; and

(5) there are no returns to scale.
Assumption (1) doesn’t hold today and what happens is movement of capital under the principle of absolute advantage (Lavoie 2014: 508). This results in a type of race to the bottom for industrialised countries that do not protect their industries.

(2) is of course highly questionable. (3), (4) and (5) are utter nonsense. Abstract pro-free trade arguments often seem to make the implicit assumption of full employment, or the effective tendency to full employment, in all nations as well, which is yet another mad and unrealistic assumption (Lavoie 2014: 508).

Movement of capital to a place where it has absolute advantage tends to cause de-industrialization in Western countries, as capital moves to nations with the lowest unit labour and factor costs, and higher wage countries experience falling wages, high unemployment and rising trade deficits.

A country like China actually makes the process worse by actively intervening via mercantilist industrial policies to promote offshoring of manufacturing to their country. But even if this intervention didn’t happen, unrestricted free trade would still have deleterious consequences for the high wage countries.

The argument for pure free trade is built on sand and is almost wholly intellectually bankrupt if it is supposed to be describing the world in which we live. A longer analysis is here. This theoretical incompetence in neoclassical and Austrian economics on the issue of free trade is accompanied by a blockheaded ignorance of the real-world success of protectionism.

The argument for free trade would be a joke, if it didn’t have such disgusting and terrible consequences for real human beings.

Bill Mitchell from today:

"the way the Left fell prey to what we call the globalisation myth and started to believe that the state had withered and was powerless"

Its not that it "withered"... many dont see it at all... this is another bias in this cohort against spatial cognition... this cohort has trouble seeing boundaries and interfaces...

They will then say the ones that do are the "xenophobia!" people...

[Martinned]

Let me just take a moment to give kudos to the excellent work done by the CPB. They may not be as good as they were under Coen Teulings, but they are still pretty good.

[CH]

Trade - free exchange between individuals - is mutually beneficial. It's not a competition between nations, it's not a 'global race', and it's not a winner-take-all game of international treaty poker. The whole bloody point is that both participants gain.

And yet we're constantly told in America that we need to work harder, work longer hours, revamp our education system, graduate more engineers, or the "Chinese/Japanese/Koreans/Germans/whoever will 'eat our lunch'!!!"

We're also told that trade deficits are a serious problem threatening our financial stability. Clearly, unless exports and imports are perfectly balanced, you're either going to be in deficit or surplus, and all the deficit countries seem to be perennially "broke" and tightening their belts, usually by selling off the state and shredding the social safety net in the service of "fiscal responsibility."

Serious question: How is any of this reconcilable with the idea that trade is not a zero-sum game of winners and losers?

It sure looks like a competition to me.