The word “globalisation” was first used in 1930 in a publication titled Towards New Education, to denote a holistic view of human experience in education. Widespread use in the mainstream media began in the later half of the 1980s, just as outsourcing of work (and jobs) started to become a conscious threat to developed economies. Today, of course, it is a buzzword.
To my mind, the irresponsible monetary and fiscal policies pursued by the US over at least the last 15 years have been really an attempt to offset the impact of globalisation, which has been pushing the US standard of living – at least at the mid to lower level – downwards for at least that long.
For almost a generation, Americans have been concerned that their kids wouldn’t be able to enjoy the same standard as they had. Moving back in with the parents for economic reasons became fairly common about 10 or so years ago. Subprime mortgages were born around that time, followed by the notion that the business cycle was dead and easy monetary policy could be enjoyed permanently — both desperate attempts to keep the American dream alive.
With the weakening of much of the financial sector as a result of the former, and a continuing squeeze on growth because of higher commodity prices (a direct result of the latter), US GDP is back around pre-2008 levels, except that there are even starker inequalities across the income spectrum.
It has also become increasingly clear that the unfettered capitalism that gave us the “Subprime and Beyond” reality show is degenerating the once-just ethos of America — a recent article in Herald Tribune documents how even Amazon, a supposedly new-age company, is not much better than China in its labour practices. Inequality in America has been increasing dramatically, and it would seem likely that America’s Gini coefficient – broadly, the ratio of income of the top few to the bottom few – is getting perilously close to revolutionary levels.
While the loudest revolutionary force in the US today is the Tea Party, I believe that it is just another symptom of, rather than a solution to, the problem. Baldly stated, the problem is that globalisation is accelerating so rapidly that it is no longer possible for the standard of living of all Americans (in aggregate) to not decline. While the economy can grow, the distribution of its still substantial value generation has to change.
In other words, there is an irresistible natural push to the left. Barack Obama’s announcement of higher taxes on the wealthy is a necessary first step. While he doubtless has a battle on his hand, I believe that the overarching cycle of change is in his favour, and, despite his current abysmal ratings, he will be re-elected in 2012 to continue willy-nilly the move to greater social equity.
For him to be re-elected, US growth has to surprise on the upside, which, given the dire expectations, cannot be too difficult. Perhaps, the dollar’s incipient rally is a signal that this is coming.
The stronger dollar will assist Europe, which has been hit even harder by globalisation. While income disparities there are much lower than in the US, the good life – and, boy, it is a good life, everyone taking off for (at least) a month in the summer – was, for several decades, dispensed by government largesse. This has bred a work culture that is at losing odds in a world that is increasingly driven by people who have come of age knowing that if you don’t work, you don’t eat.
The euro, which was seen as the magic drug to improve competitiveness and assist united Europe to continue to create value, has failed — unsurprisingly, of course, because, in life, there are no magic drugs. Fixing a systemic problem requires systemic solutions, and continuing the medical analogy, the best systemic solutions in the world today are Chinese (acupuncture), Indian (ayurveda) and German (homeopathy).
Whatever the contours of the immediate financial solution, the euro will remain unstable and Europe will continue to flail around in search of growth and employment, until the rest of Europe lines up behind Germany’s no-nonsense approach to life. Distant though that seems today, it will come to pass — there is no other solution.
It is 2011 — if you don’t work 40 (sometimes 50 or even more) hours a week, you certainly won’t get cake for much longer.
The denouement will take time – perhaps, a decade or more – but at the end of the day, we will see a recovered (and racially very different Europe) and a back again (though gentler) America.
A brave new world, indeed.