Globalisation – no other topic has been discussed as fiercely and emotionally. The debate tends to hinge on two questions: Can globalisation be just? And: Does globalisation improve our prosperity? The honest answer to the first question is: No. And the answer to the second question is: Yes. So why is that the case?
The gap in prosperity between the emerging markets and the industrialised countries has significantly closed in a relatively short period of time. This trend has been driven by well above-average growth in the emerging markets. Growth was, in turn, triggered by strong wage differences and a corresponding relocation of labour-intensive processes from the industrial countries into the emerging markets, with the emerging markets’ business model being strongly export-driven and less dependent on the domestic economy.
While the emerging markets got such a boost from the shift of certain work processes from the industrialised nations, this had socio-political consequences for the latter. The workers who have hitherto performed the labour-intensive processes are directly affected. The wage differences were so large that it would not have been possible to save the jobs in the industrialised nations through further process optimisation. This led to higher unemployment and perceived social injustice. The injustice of globalisation is thus innate in the process of globalisation itself.
However, this injustice can be offset by the national policies of the industrialised nations. Measures targeting the parts of the population affected, such as retraining and other special development efforts, are important instruments in this regard.
The process itself cannot be stopped, other than by generally banning the relocation of production facilities. This is why globalisation is unjust. Because the gain in prosperity in the emerging markets is to the detriment of certain groups of workers in the industrialised nations. Nevertheless, national policymakers have opportunities to address this and lessen the negative impacts.
Globalisation also brings high prosperity gains in the industrialised nations because the relocation of labour-intensive processes to countries with lower wage costs reduces manufacturing costs. We experienced a phase of very low inflation with very stable and high growth rates. This is the so-called “Goldilock scenario”. Given the modest inflation, consumers’ real purchasing power rose and the domestic economy in most industrialised nations clearly gained momentum, for example in the United States.
Countries such as Germany further boosted their competitive edge and the export-driven growth model benefited massively. German industry’s specialisation in capital goods also had a positive impact in this respect. Likewise, thanks to moderate inflation the central banks were able to lower interest rates over a long period of time. As a result, the global level of yields fell. Investments benefited from this, as did private consumer spending and above all the property market. This of course went hand in glove with a sharp rise in private debt levels, which essentially culminated in the 2007 financial crisis.
This means that globalisation involves social injustices in industrialised nations, which can and must be tackled at the national level. The prosperity gains in the emerging markets and industrialised nations are immense and far outweigh the unfavourable results. The long-term consequences are therefore to be rated as extremely positive.
The former emerging markets are slowly joining the ranks of the industrialised nations and are adapting their economic model to create one driven by the domestic economy. Moreover, a higher level of prosperity in the emerging markets and the industrialised nations lessens migration pressures. This has been an important topic in particular in recent years. All of this, from my point of view, forms an argument for more free trade rather than less. Exclusion hurts everyone.