In the Western world, globalization has many enemies and the reasons are not hard to understand. In light of the fact that many Western companies decided to either outsource or move to countries with lower workforce costs altogether, many domestic employees who thought the could count on job security were left vulnerable.
To give you an example from the United States, think about the city of Detroit or the entire proverbial Rust Belt that consists of communities which were quite economically vibrant thanks to their strong industrial output in the pre-80s era, yet started declining dramatically as of 1980, in no small part due to globalization. To say that there have been no losers as a result of globalization would be hypocritical at best and even downright reckless.
However, a very strong case can be made that the positive outweigh the negatives.
For every let’s say US or European worker who now has considerably less job security than in the past, several people from much poorer nations managed to escape poverty altogether. Of course, this doesn’t mean their lives are now perfect but even a less than stellar job at a Foxconn factory tends to be much better for a Chinese citizen than the opportunities he would have had at his disposal prior to globalization bringing about so many foreign investors. The same principle applies when it comes to most developing economies.
In a world dominated by protectionist rather than the globalization-driven trade landscape we have today, it would have been multiple orders of magnitude harder for China to experience the record-breaking growth levels it is now popular for. As such, China most definitely owes a debt of gratitude to globalization.
But if you live by globalization… can you die by globalization?
It does seem a fairly gloomy question but in the spirit of intellectual honesty, the answer short answer is… yes. A longer and more precise answer would be that yes, you can die by globalization but the probability of things going that far are on the low side. Still, it’s important to enumerate and quantify these risks, to at least be aware of their existence and preferably take things one step further by preparing for at least some of these scenarios accordingly:
- Massive capital flight. Under the right circumstances, either due to financial calamities or pressures from the country the corporation in question has its main HQ in, China would have quite a bit to lose in the event of a massive capital flight. When an economy has grown to be accustomed to ample access to foreign capital and entire business models have been created around that reality, the entire engine risks grinding to a halt if that changes in a deeply meaningful manner. While there is wiggle room and the Chinese authorities have options at their disposal to effectively combat this… let’s just say it would be anything than a walk in the park
- Companies relocating to countries with even lower workforce costs. Think of it as the reverse of what happened in China after 1980 or exactly what happened when it comes to many Western nations after 1980. Just like many US or European companies jumped at the opportunity to move at least a part of their activity to China rather than pay much higher workforce-related costs at home, the same risks happening in China as it matures. This process cannot help but bring about higher wages and while this is great for the employees who are taking advantage of this, companies themselves face higher costs. Depending on how many of them end up deciding to move to other jurisdictions or at least diversify a little bit, one shouldn’t be surprised if China is ultimately left with Rust Belts of its own. As such, it is imperative that the Chinese authorities analyze this possibility carefully because… well, it’s actually not accurate to call it possibility, “probability” would be a better term, a very high probability at that
- In today’s deeply interconnected world, China risks catching a cold when another economy sneezes. Just think about the fact that after the Great Recession of 2007-2008, many Chinese companies were actually more affected than companies from the US, the country the Great Recession had its origins in. This is because despite maturing quite a bit, the Chinese economy still isn’t perceived as a safe haven. On the contrary, when faced with exogenous shocks, capital is actually likely to flee to safe haven jurisdictions. Eventually, this will change but until that happens, it’s fairly safe to assume not that China CAN or MIGHT catch a cold when a major economy sneezes, but that it actually WILL
… these are just three examples of how if you live by globalization and are not able to plan for potentially catastrophic scenarios, you might just die by globalization. As such, the wise approach needs to revolve around continuing to make globalization work for you (because, when it comes to China, globalization has indeed helped tremendously) but not blindly believing that nothing could possibly go wrong or change course.