Many people view the world economy today as rather cynical, the rise of populist leadership, issues such as ‘Brexit’, Trump and even Capitalism. It’s now a question of what were the causes of such major events? Many have cited that the tumultuous growth of globalization was in fact a big factor. Before going into deeper contextual analysis, defining globalization is important; the IMF simply put’s it as ‘trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of knowledge’.
It would be rather assertive to assume that globalization is all to be blamed for the negative effects of the world economy right now. A safer approach is to realize that the world is entering a new dynamic in economics. The notion that ‘globalization is collapsing’ because of assumptions relating to events above is a fallacy. Donald Trump and his policies on migration and protectionism is nothing but a repercussion of the miscarriages in globalization. Understand that globalization has changed the lives of billions of people, just because the United States and a few other developed economies face troubling turbulence, that doesn’t mean the rest of the world is facing the same.
The United States faces a dilemma of distorted shares of its economy between its people. Trickle-down economics, yes that has all to do with it. Ronald Reagan and George Bush’s policies wanted to expand the ‘economic pie’ or in other words the GDP of their country. They did this by introducing huge tax breaks for the rich and especially the super-rich, all in the assumption that by coercing policies benefiting the rich, the wealth created by the rich will then ‘trickle down’ to the others below them. There’s no dispute that the pie did grow larger, but the fair share of the pie was forgotten. The World Bank GINI coefficient (a standard measurement for inequality) showed that the index increased from 37.5 in 1985 to 41 in 2013 (smaller the number, the lesser inequality there is), thus indicating that inequality has in fact risen in the United States. Indeed because of such events, the United States now see more protectionist policies being set forth, especially in trade activities. The plans of withdrawal from NAFTA, the continuous rejection on proposals for TPPA and the recent issue on the 20% tariff impositions on steel imports shows exactly the type of policies protectionists want. But one should ponder, why did the American people vote for this? It’s as simple as the fact that a large sum of them merely enjoyed the sparkles and rainbows that globalization had brought to many others.
In the land of Englishmen, the ever lasting issue of leaving Europe doesn't fail to reach the headlines of British tabloids daily. ‘Brexit' has been on discourse for almost two years despite article 50 being triggered. This is game theory for the British lawmakers. 51% majority in its memorandum meant that more than half people were upset with the policies and current state of their economy. But leaving the EU would mean leaving behind several economic benefits for the sake of democracy. Much like the United States, many British choose to evolve their reasoning's for wanting to leave the EU common market as ‘wanting their country back'. Since the age of Margaret Thatcher, the continued influx of migrants entering the UK has put British jobs and employment in ‘danger’. It is important to understand that either side shouldn't be blamed. The migrants are simply excising their rights and advantages on the freedom of movement between European borders while it's also relatable as to why many Brits are very much against it. However, understand that 44% of British exports go towards the EU common market and almost 48% of its foreign direct investment originates from European countries around, on top of that in 2014, exports to the EU amounted to 13% of the total British GDP. It is crucial to realize, that with the establishment of the EU common market indeed has upset many; namely in the UK, on the other hand it has also brought sunny days to many other economies in the EU. Econometric modelling has shown that from 1992 to 2012 Germany and Denmark saw huge growth within its economy. Germany recorded an average 37 billion euros of increment yearly on its GDP which merely translates to a near income increase of 450 euro per person. Similarly, Denmark saw an average 500 euro increment of income per person. But one can simply say that these benefits could have been for many other reasons. Frankly speaking, if one were to remove these two economies from the EU, it has been found that in 2012 almost 2% of their GDP per capita would have vanished, translating to a decline in 720 euros in Denmark and 680 euros in Germany.
The major phenomenon known to many today is indeed China and its strong influence in the east. There’s no disputing that China’s rapid growth has put many economies in discomfort, namely the United States. But no one can blame them for feeling such vulnerabilities’, what was the world’s strongest economy for the past few decades, is now slowly losing its influence to China. Their continued efforts as playing ‘big brother’ through the ‘One belt one Road Initiative’ with the world’s fastest growing economies; Vietnam, India, Pakistan, Indonesia and the many more. It’s almost as if these two economies are slowly switching roles between them; the United States trying to find its balance for its internal problems with its heavy focus on supply side policies and furthering that to more protectionist measures and China now creating an ever-growing trade bloc with multiple economies, it’s nothing less than one could say, a cliché fairy tale.
It is high time one realizes that, although the strongest of economies are suffering, the world economy today remains on course for greater things. Looking back, the ‘Millennium Development Goals’; initiated in the year 2000 would’ve never been able to cut poverty by 50% or elevate universal primary education to 91% if it weren’t for globalization. The Gates foundation donating billions to defeat poverty, increase access to healthcare, clean-water and food has uplifted the lives of so many. None of that would have ever been possible if it wasn’t for Microsoft’s success in spreading through almost 200 economies worldwide and receiving the income they did. Through globalization did economies like Brazil, China, India, South Korea, Thailand and many more experience continued growth, as reflected in their Gross National Income (GDP + Income earned abroad). China’s efforts for the One Belt One Road initiative should not be viewed with such negativity just because the US, UK or Japan isn’t leading the way. So long as economies collectively continue to grow, poverty continues to be eradicated, inequality is being reduced and continued benefits are given to the vast majority of society, there’s only every reason that we should view in positivity. While China may not follow the ideals of a democracy at large (and we should continue advocating for it), the spurring of economic benefits to many others is indeed substantial, such initiatives should not be stomped on. We now know that the 2008 financial crisis was due to the deregulation of several entities, we learnt that markets aren’t self - fixing, attempts to cover those shortfalls of globalization and trade liberalizations should be looked at uplifting necessary regulations through governments and world entities. And the worries plaguing many economist today is of course the leverage China's posses to the other economies. The question of whether the money flowing in are in fact 'Foreign Direct Investments' /other type of investments, or are they instead 'borrowings' from China to these smaller economies. But then again if people agreed to economies borrowing from Japan in the late 20th century, what is the problem now? That indeed is a debate on its own for another sunny day.
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