The real consequences of globalization that no one discusses By OREN M. LEVIN-WALDMAN
NEWARK, NJ – May 4, 2021 – We hear a lot about globalization and its impact on workers’ incomes, their jobs and overall inequality over the past decades. And yet, the meaning of this term has not always been clear. We naturally assume that this means that our national economy is located within a larger global economy and that what happens thousands of miles away affects us at home. But what this means in concrete terms is not clear.
For free market scholars who firmly believe in free trade, globalization is the hallmark of a healthy economy. It is capitalism that follows its natural course. But this is not Adam Smith’s capitalism where firms were supposed to be relatively small firms, where many market players would lead to competition, and this competition would self-regulate.
In today’s global economy, companies capable of moving capital and offshoring are typically large limited liability companies. Because we have fewer large companies that can operate anywhere in the world, they are in a better position to drive down wages, especially for less skilled workers. This, of course, contributes to the increase in wealth and income inequality.
What is happening here? Large firms, which in many cases have monopoly power, especially those that have developed through acquisitions and mergers, have monopoly power over labor. They can set effective wage rates, especially for low-skilled workers, because they are the biggest, if not the only, purchasers of labor power. In an economy where businesses are relatively small and monopsony power is less, there may be more competition. Increased competition could simply put an end to the suppression of wages.
The fact that capital is free to go anywhere means that operations can be located in regions with low wages, forcing companies in more developed countries with higher wages to cut wages in order to ‘be competitive. And yet, there is more to it. Capital is mobile in a globalized economy because it has been globally financialized.
When Smith, writing in what was still a pre-commercial economy on the eve of the Industrial Revolution, spoke of the capitalists, he was largely speaking of the producers and sellers – landowners who owned their own operations – who in later words of Marx, literally owned the means of production. In the modern globalized economy, companies are owned by shareholders but controlled by what are called fund managers, or simply managers.
These managers who are technically employees of companies make management decisions as if they were property owners. Their main obligation is to their shareholders, which also includes the fund managers themselves, which means that their main job is to increase shareholder value. As many of these fund managers are remunerated through dividend income and stock options in addition to a base salary of several million, they have a vested interest in increasing shareholder value. because they will also be beneficiaries. Of course, when the company is successful, the boards to which they owe their primary allegiance will reward them more with bonuses and more stock options.
Perversely, therefore, in the world of what the late economist Hyman Minsky called fund manager capitalism, the typical manager increases the value of stocks by cutting wages and, if necessary, relocating operations to places where conditions tax and regulatory policies are more favorable to the realization of profits.
Yet we are talking about a world of big business, and not necessarily small business. On the contrary, small businesses have themselves been victims of globalization. Ironically, then, globalists who espouse free markets, open borders, and free trade also need greater government intervention to clean up the mess left by globalization.
The typical globalist simply claims that in the spirit of Joseph Schumpeter’s “creative destruction”, where the old and the obsolete are replaced by the new and technologically advanced, workers should simply retrain in order to get good jobs. paid workers that favor technically more skilled workers. In other words, the low-wage, low-skilled economy, which due to downward pressure on wages at the bottom of the ladder leads to inequality, should be completely replaced.
In a globalized economy, a culture like the individualized one found in the United States, the globalist simply argues that workers who have lost to the changing nature of the economy have no one to blame but themselves. themselves for their fate. It is their responsibility to prepare for the new labor market; not the responsibility of the government.
Of course, this argument is too practical. If everyone got the education and training they needed, we might have more skilled workers than there are jobs available, in which case there would be more downward pressure on wages, exacerbating inequalities. But the idea that the responsibility lies with individual workers rather than the state is absurd given that these forces of globalization have occurred with the help of government policy.
Businesses grew because the government did not enforce antitrust laws. It will be remembered that in Smith’s capitalist world, restrictive free trade monopolies must be broken in order to protect a competitive market. Capital was able to move more easily thanks to tax policies favoring the interests of companies, even the interests of multinationals. It is the multinational corporation that has no allegiance to nation states. And of course, institutions like unions that protect workers’ rights have been weakened by anti-union politics. In the United States, this happened through right to work laws and the National Labor Relations Board stacking up with people who were against work,
While globalization has led to economic growth, it has also had serious consequences for workers and their communities. In the United States, well-paying jobs, especially in manufacturing, have disappeared and with their disappearance came a weakening of the middle class. The result has only been increased income inequality, and the consequences are most likely a contributing factor to the polarization we see in many parts of the world between elites and ordinary working people. In the United States, it is between the elites and the “deplorable” who feel displaced by the economic change. In Britain, it’s between supporters and opponents of Brexit. And in France, it is between the Yellow Jacket protesters and their opponents.
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Author of the restoration of the middle class through wage policy: arguments for a middle class
Understand public policy in the United States.
The minimum wage: a reference manual
Wage policy, income distribution and democratic theory
The case of the minimum wage: competing policy models
Oren M. Levin-Waldman is a faculty member in the School of Public Affairs and Administration at Rutgers-Newark University and a socio-economic researcher at the Global Institute for Sustainable Prosperity Research.
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Learn more on the professor’s website: https://www.econlabor.com/. Direct email to [email protected]
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Oren M. Levin-Waldman, Ph.D
Office: (914) 629-6351