At its core, despite what sometimes has been said about it, globalization is actually a simple system. But unlike many other simple ideas, Globalization's simplicity doesn't make it strong.
It is actually a rather brittle system, since it relies so much on perfect variables that it demands remain forever unchanging. And since the world is complex and changing and imperfect, well….
The main component of Globalization is said to be interconnectivity. That is not actually correct. Interconnectivity is one of the results of Globalization, but it is not one of its component building blocks, much less the main one. The primary component of globalization is specialization – the idea that every location in the world should specialize in what they are best at, whether that is making bananas (India), electronics (Japan), or babies (China, ie cheap labor).
To illustrate: say there was a small island with a poor climate for wheat and corn, but an a climate and land ideally suited for growing cocoa, but most of the land was devoted to making wheat and corn in order to feed the people of the island, with whatever land was left over (which wouldn't be much, since the island isn't an ideal place for wheat and corn, and so would require a lot of land to grow a meager crop) devoted to cocoa for export, bringing in a meager but non-vital income to the island.
Well, the idea behind Globalization is that that island should, instead of growing food crops and some cocoa, devote itself solely to the cash crop of cocoa, which they could then export for vast (since they can grow a lot of it on their land ideally suited to its growth) sums of money, which monies they could then use to but whatever foodstuffs they needed, with a lot of profit then left over with which to but other non-necessities. then that place should be making cocoa and nothing else, so that instead of wasting their
That's actually not a new idea, by-the-by, despite what you might have heard. Not so long ago, it was called cash-cropping, and the countries who based their livelihoods around it (often not by choice) were called banana republics. But the idea has gone by other names, as well, because it is far older than that. Far, far older. Going back not centuries, but millennia.
In fact, there are eras in history that have seen far more trade per person than what is currently happening now. It is one of the strange foibles of the Globalization system that it doesn't produce a lot of exchange of goods. (One can go down to the shops and easily grab a garment Made in China, but it's difficult to go and buy an actual Chinese garment.)
The sheer ancientness of the ideas makes it quite easy to discuss the methods and results of globalization, since it is a system that has been thoroughly studied for millennia, with countless reports and treaties and studies devoted to it.
So, the idea at its basest: Essentially, globalization breaks down the countries of the world into three (sometimes four, if one separates the finance center from everyone else) categories – the producers, the manufacturers, and the developed (or consumer, in modern-speak) countries.
Now, the difficulties that the producer countries can face under Globalization are well-known and well-documented, but I will mention them briefly anyway, for the sake of completeness.
When one location devotes itself solely to one crop, they become dependent on the global market price of that crop.
- If the price falls, the manufacturing and developed countries that make use of that product prosper, but the producing country earns very little money for selling its produce, and since it now has to buy and import its people's food, that falling profit means that now it can't afford to purchase enough food to feed its people, and its people starve.
- If another country decides to sharecrop the same crop, then there were be an oversupply of the crop on the global market, ie with two countries cocoa there will twice the amount of cocoa on the market than there was the previous year, and that without any increase in the demand for cocoa, meaning that neither of those countries is going to sell all of their crop, and with the oversupply what they do sell will be sold at a reduced price, meaning that our little island won't earn enough from the sale of its crop to but food for its people, and its people will starve.
- If there is a disruption to the trade network, such as a nearby war and the resulting attacks and raids on transports, the producing country will no longer be able to gets its food to the buying countries, and since its people can't eat the sharecrop, its people will starve.
- If there's a blight on cocoa one year, the producing country has no other source of wealth or food (since it has wholly devoted itself to its cash crop), so it won't be able to sell any cocoa that year, or at least very little depending on the blight, so there won't be any profit from sales of the crop that year, meaning the island won't be able to import any food at all, and its people will starve.
- (Yes, there's a lot of hunger going on in this kind of system. That's the way it is. With the old full farm style, people are poor, but most years they are well fed).
- During the changeover from food crops and a little cocoa to only cocoa, few farmers won't have the seed, tools, and knowledge ready for mass-producing cocoa, and so will need to reorganize and restock their farm for the cash crop, purchasing equipment, seed, and training usually on loan (bet you can see where this is going already, after recent events) which – in the usual way of loans – sends the farmers into a period of austerity while they try to repay their debts, and then one of the above calamities happens and they lose the farm to the banks (often leading to suicide in many nations, such as India).
And that's just the tip of the iceberg for the producing countries.
Which illustrates why the Globalization system is so brittle – no disruptions can be allowed under Globalization. And disruption to the trade network causes an instant spiral into starvation. Which is why the developed countries (who the globalization system is designed around) have to be involved in the affairs of so many countries – they can't afford to allow any disruptions to the system, or the brittle thing shatters.
However, that is actually just the beginning of the system's brittleness. The system isn't only brittle at the cash-cropper level; it's also brittle at the manufacturing level, and for many of the same reasons.
The manufacturing countries are – like the producing countries – specialized, but instead of being specialized in a crop, they are specialized in industry and manpower. Such congregation of industry tends to quickly aggregate a lot of wealth in these countries, since every industry is generating profit based on cheap goods from the specialized producing countries that they process with masses of cheap labor, but – as Ireland so recently discovered – profits that appear quickly, can even more quickly disappear.
- If another country decides to offer a better manufacturing deal to the developed countries, all of the industry leaves the original manufacturing country, and a large section of the populace immediately ends up idle, out of work, and starving (there usually aren't unemployment benefits in these cheap labor countries).
- If there is a disruption to the trade network, such as a nearby war, the goods can no longer reach the manufacturing country, and a large section of the populace immediately ends up idle, out of work, and starving.
- If the price of transport rises markedly – such as a fuel shortage – it becomes no longer profitable to transport goods over long distances, which means it is no longer profitable to transport goods from the producing countries to the manufacturing countries and THEN to the developed countries, and the developed countries will cut out the middleman – ie, the manufacturing countries.
- If the local trade, business, or public laws change unfavorably to the developed nations, all of the industry will leave that manufacturing country, and a large section of the populace immediately ends up idle, out of work, and starving.
- If there is a public relations nightmare of some kind (such as, up to recent times, a communist revolution), all of the developed nations will abandon that manufacturing country, and a large section of the populace immediately ends up idle, out of work, and starving.
- If the developed countries suffer a downturn, then the manufacturing countries no longer have anyone to sell their manufactured goods to, and since they are specialized in manufacturing (and thus don't produce much of their own food), they no longer earn enough to import food from the producing countries, leaving their people starving.
- If ONE source for a multi-faceted product drops out of the trade network – such as because of a war or a natural disaster such as a tsunami – the entire manufacturing line grinds to a halt, because under the specialized system each part is produced in only one country, thus insuring that every producing country and every manufacturing country and all of the land and sea between must at all times be stable, safe, and unchanging in its laws, international relations, government, and social philosophy. Which means the developed countries will constantly intervene in the policies and governments of the manufacturing countries, leading inevitably to a desire for independence, followed by crackdown, resulting in resistance and revolt, and the loss of that country from the trade network and thus a breakdown of the entire network.
The brittleness of Globalization at the manufacturing level is less well-documented than the brittleness at the producing level, but it is still relatively well-known in the more internationally-oriented fields of study.
But much less well-known is how brittle the system also is at the developed level.
For the most part, it is widely assumed that Globalization can only ever benefit the developed countries, even in troubled times. But that is all it is – an unproven, and even untested, assumption based on formulaic reasoning.
To illustrate the brittleness at the developed level, one must first go examine the method of Globalization. How is it implemented?
In essence, a developed country slices off a portion of its production or manufacturing economy and ships that portion out to individual countries that being specialized in that field, whether willingly, through coercion, or force – see India, Hawaii, and El Salvador, just for starters.
What are the benefits in doing so?
To take from a real world example: it might cost $25 to produce a shirt in a developed country, which would then be sold to retail stores for $45, who would then keystone (ie the standard mark-up) it to their customers at $90.
But you could have that shirt made in a specialized cheap-labor country for $1, who would then sell it to a distributor in a developed country for $4 (note: more than keystone) + $1 shipping, who would then wholesale (which is supposed to be 1.5x mark-up, or at $7.50 in this case) it to a retail store for $12 (again more than keystone, and so technically NOT actually wholesale), who would then sell it their customers for $29 (again more than keystone). So, at every stage, everyone is making a lot more money on that shirt, AND the eventual customer gets it a price 1/3 of what it would be if the shirt had been produced in the developed country.
So, everyone's happy and really wealthy, and the customer got a cheap good, right?
Mhm, if all the variables remain perfect, yes. It does. At first. But eventually it becomes harder and harder for the developed countries to maintain that perfection.
First and foremost, keystone is the standard rate of increase for a reason – because that is the system that has developed over thousands of years of trade as being most suitable and fair.
The above example with the shirt being shipped out to a specialized country is called an exploit. Essentially, it is an imbalance in the system that someone has found and is profiting from. Nothing special about that, really. That's the essence of finance.
Normally, though, over time such exploits tend to smooth out back to keystone. The owners of the companies in the cheap labor countries start earning more, they buy things with that wealth, prices rise, workers start demanding pay raises, owners at the different stages start to demand more of a cut of the overall profits from the exploit. Competitors come in offering the same product at a discount. Etc etc.
Eventually the exploit just smoothes away.
And that's if it all doesn't get sent up in a ball of fire for any of the reasons above.
Which means that, over time, if the developed countries want to keep that exploit in existence, they must intervene in the social constructs, governments, and policies of all of the producing and manufacturing countries in their trade network, and they must do so ever more frequently the longer they try to hold the exploit in place – whether it’s the need to maintain cheap fuel for transporting large amounts of product over vast distances, the need to maintain business-"friendly" governments in the members of the trade network, the need to maintain peace and security across the shipping lanes and the countries that border it, the need to keep cheap labor cheap, or any of a thousand other needs. Whatever, the price for maintaining so many variables in their perfect condition is steep, and ever-increasingly steeper the longer they are forced to maintain.
It is, in essence, a vast and unending subsidy to all of the corporations involved. If a developed country's corporation ships out its manufacturing to an unstable and corrupt government because of its cheap produce and labor, and then that country nationalizes that product, should the developed country's government then intervene on behalf of the corporation?
Or better yet, ask the question: will it intervene? Historically, the answer is: yes. Whether it's influencing an election in China, bribing a politician in Brazil, maintaining a dictator in Iraq, assassinating a leader Venezuela, maintaining a corrupt monarchy in Saudi Arabia, touching off a coup in Indonesia, or fighting a war in El Salvadore, interventions steadily more numerous, costs price increasing steep, and their price increasingly more cutting.
But with the attentions of the developed countries diverted so heavily towards maintaining their exploits – and counting their moola – they tend to miss the brittleness of their own situation.
Because, you see, cutting out parts of their economy causes them to walk a fine line. A knife's edge, really.
Let me illustrate.
Let us say there's an island that produces a little furniture from its own wood (25% of it's economy), grows sugar (55%), fishes for its food (15%), and weaves traditional hand-woven reed baskets (5%). A simple little economy.
Then one day, the island decides to outsource its furniture production – it never had a lot trees, anyway. All of the people in the local furniture and wood-cutting trade are immediately thrown out of work. But, on the other hand, all of the furniture being brought into the island is 1/3 of the old price. So, everyone else on the island (75% of the people) now need to spend 1/3 of the money that they used to on furniture in order to acquire the same amount as before. That frees up a sizeable portion of their income, which monies they can spend any way they desire, thus making them substantially more wealthy without their companies ever giving them a raise.
Which means that the local economy of the island booms (all that freed up money from the 75% who can now spend). Thus, then, a sizeable portion of the furniture makers and woodcutters eventually find new trade selling imported goods to the now "wealthier" 75%. Sure, the new jobs don't pay as well, but since furniture doesn't cost as much now, it makes up for the loss, kind of. Partly. Enough to get by. Not to mention the furniture bosses who did the outsourcing are now raking it in, and they are buying lots of new goods too.
So, booming island economy from outsourcing.
Yet, the bosses in the sugar trade, seeing how much money the furniture makers made by outsourcing, decide they want to outsource too. So they do.
However, when they outsource, it cuts another 55% out of the economy. Now, most of the islanders are out of work, and they can't even afford the fish and baskets that they used to buy, putting a sizeable portion of those trades that are still left on the island out of work also. The economy collapses due to there not being enough wealth produced there to purchase any of the imported goods, even at the cheaper price. The furniture bosses invested well, so they are doing fine, living in their new mansions and employing a few of the locals as servants. But the sugar bosses end up selling their companies on the cheap to an outfit from the hated island next-door, who then set up an extractive system that employs few, and that terminates them all without notice on any bad year, and maybe doesn't even pay them for the work they've already done when it fires them. Only the basket-weavers still have a full trade, since their industry can't be outsourced, but its produce is mostly shipping out overseas now, since few locals can afford even those old baskets.
Thus, outsourcing initially boosts the overall economy, and it does so immediately and to a large degree. And it will keep doing so with every outsource, but with increasingly less efficiency, and there is some unknown point of outsourcing that will cause internal collapse of the economy.
The promised Globalization answer to the problem of that unknown point is the idea that the developed countries will do what they do best and innovate new industry to replace everything that is lost by outsourcing. Which would then make the economic game for the leaders of those developed countries to be maintaining a balance between innovation and outsourcing, so as to ensure that at no time does the outsourcing get beyond the point where innovation is building new areas of industry. That, while also interfering in the all of the other countries of the network in order to ensure that all the outside variables of the system remain in the state of absolute perfection that is the only state that allows the system of Globalization to remain viable and thus profitable.
And, of course, that's assuming the developed countries are actually as innovative as so many like claim. Which becomes the most important question of all. Is it?
All of which explains why Globalization is so popular and can drive such success – when things are going perfectly, it makes a lot of money for the manufacturing countries, and oodles of money for certain sectors of the developed countries, and even sometimes, almost by accident, makes a bit of a fortune for the producing countries outside of the bribed government officials.
But it also explains why the system is so brittle.
Globalization is a simple system that makes a simple sense, with each country specialized in what they are "best" at. But, so many things can go wrong in so many different ways, with the strain only getting worse every year that the system is imposed upon the global marketplace.
And that's the other thing to know: not only has globalization been tried many times before, it has collapsed many times before. To take perhaps the most recent try: the British Colonial Empire imposed just such a system upon a great deal of the world, and did so for several centuries. But it all came crashing down during the two World Wars.
Which only makes sense since the current system of Globalization is pretty much a rip-off of the British Colonial Empire, yet with a glossy new name.
