Wednesday, March 30, 2011

Globalisation and the Real Challenge Facing the West

One of the oft discussed currents within the river of globalisation is the domestic economic effect on a given population by the kinetic forces produced by this movement. So, for example, economists will discuss the effects of rising emerging market demand on commodity (particularly food and energy prices) and how this affects the populations of, say, Western economies.

 There is no doubt that this effect is tangible and particularly on the lower income groups who spend more of their discretionary income on such goods. In addition, there is no doubt that the shift of production to emerging markets is producing structural strains within Western economies. These points are all valid.
 However, this inquiry will be focused on the internal effects of globalisation within a domestic economy. Specifically, I want to focus on highlighting some of the effects on the relationships and thinking between different segments of a population.

Globalisation is Changing the Cultural Fabric of the West Internally
The thrust of this argument starts with a few assumptions which are
  • Globalisation is not only shifting production overseas (from the West) but also shifting the demographic composition of ‘lower income’ (legal and illegal) workers in the West. For the US read Mexican migrants, for the UK read Polish, for Germany the Turkish etc
  • Globalisation is creating new emotional linkages that can supplant existing ties. So for example, a British person might feel a stronger emotional connection with the victims of an earthquake in the Developing World than they do with the economic situation of his migrant cousin, who is living homeless on a working site in London.
  • The advent of the ‘victory’ of Western style Liberal Democracy has produced no end of sympathy for the underlying belief that Western economies operate in a kind of hermetically sealed meritocratic bubble, which is denied to people in the third World
I want to develop the last argument and then demonstrate how it enmeshes itself in the other two.

The West is a Meritocratic Society?
Accepting the last point, leads us to an understanding that in this ‘meritocratic’ society, one is paid what one contributes. I do not argue against the basis of this premise, well certainly not from a moral perspective or from the belief that this is, demonstrably, the optimal way to allow for economic growth.
The problem is it doesn't work in practice! The theory is that businesses are subject to economic uncertainty and risk, by which an individual will be held accountable for with his actions. Indeed, liberals and libertarians have never written so fervently as when they highlight the threat to this system paused by vested the self interests of trade unions in the West or apparatchiks within Communist societies. These two groups are seen as promulgating the redistribution of resources and income along the lines of political power rather than market competition.
That approach is definitely not seen as meritocratic and, within the vanguard of the capitalist elite there are no greater exponents of this theory than the Financial Services industry. It is free markets for all and, no matter if they are paid large amounts of money, it is a free market and they are worth it. The more they are paid, the more they are doing to help generate the good society.

 After all, this is the optimal mode of production and their salaries are justified due to the 'risks' they are taking. Throw in the belief that it is, indeed, a meritocratic society and one can be immediately obviated of good ol' fashioned notions of paternalism towards lower income groups in their society.
Alas, the champions and promulgators of free market liberalism do not hold fast to their beliefs under the threat of being damaged by them. I need not tarry on the point any further, as it is well covered in this blog already in other posts. Suffice to say, that the massive redistribution of resources towards the financial services sector (this always happens when they are threatened with going bust) represents the very antithesis of free market economics.

The banks are not held accountable to market forces, the ‘risk’ is passed on the taxpayer, and the rewards stay with the polluter. The victim pays and, a less meritocratic scenario would be hard to envisage. In summary, they are not ‘worth it’ and the political manipulation of the last few years by the financial services industry exceeds, by far, anything the trade unions did in the 70's. Coal's problem was that it wasn't 'Too Big To Fail'.

Meritocracy and Globalisation?
Having laboured the point of the meritocratic fallacy at the heart of the West, it is time to elucidate how this ties in with the rippling effects of Globalisation. Simply put, once a meritocratic society is declared, it then becomes easier to obviate responsibility (in the battle for redistributable income) towards less advantaged groups within your own country.

 It is made all the more easier if those groups do not share culturally, linguistic, religious or racial ties with the dominate group. I suspect this is the case with migrant workers, whose political and cultural connections are positively correlated with the increase in their transient nature.
Moreover, for the disadvantaged people that do share these cultural ties (indigenous) there is a kind of curious dichotomy of solutions taking place and, neither is particularly attractive. On the one hand, we have the acceptance of a kind of ‘dependency culture’ whereby the earners (mainly the UK Financial Services and Homeowners in the South East) generate the incomes to give themselves an autonomous, fulfilling life, in order, as a by product, to pay taxes to supplement a welfare laden dependency culture for the rest. 
The other hand has it that the traditional paternalistic ties that encourage social mobility and an active involvement of all segments of the population (not just the already fortunate) are being weakened by the dependency culture.  I suspect that,  the fortunate (particularly in the UK) pay their tax with the derisory tacit assumption that these people (the beneficiaries) are not ‘fit’ for the purpose of competing within the meritocratic society.
No matter, the result is the same. We have the worst of both hands. The dependency culture is throttling the enterprise culture and the obviation of responsibility –that comes with the moral conclusions of the deluded belief in a ‘meritocratic’ society- is threatening the possibility for social mobility amongst the poor.

Globalisation plays a key role here too. Increasing portions of poorer income segments of western populations are coming from transitory migrants. Moreover, increasing globalisation makes it easier for the wealthy to donate time and resources to foreign causes rather than focus on their own.

What Needs to Change?
Before concluding, I should point out that I am no believer in Socialism or the benefits of substantive redistribution of income. On the contrary, I am free market liberal and, I believe in what I preach. However, it is saddening to see the tide turn so forcibly against one’s beliefs. If I focus on the UK, it is clear that the tide has turned. Quite frankly, the Osborne/Cameron team is displaying every element of following on from the political ‘deal’ that Gordon Brown spent years fortifying so effectively.

In other words, Financial Services and Housing in the South East are politically protected in order to support a welfare state that exists to win votes for the UK populace ex South East. It is no wonder that the Liberal Democrat Party and Conservatives are forming such a tight coalition.
What is so maddening about all of this is that the environment does exist for a true liberal innovator to make changes. This is the first time in generations that a UK populace is somewhat understanding of the necessity for public cutbacks and, concomitantly a reduction in the share of GDP taken by the Government. Unfortunately, this opportunity is being wasted by Osborne/Cameron in their desire to apply the principles of spin and short term ‘vote winning’ by appeasing the parts of the population that they want to win votes from.

What is needed is the consistent application of the understanding that free markets and autonomy have benefits for all. Accompanying this should be the tacit recognition that we do not live in a meritocratic society. Someone like Bob Diamond might not see it that way, but I wouldn’t expect him too.
In addition, the dependency culture is not conducive to the functioning of a free market economy. Especially if it involves the cultivation of it by the redistribution of income towards the favoured few in the South East. Rolling back the frontiers of the State is not just about encouraging some to enjoy wealth and autonomy. The implication being that they (the wealthy) continue to generate the taxes, in order to be redistributed to placate the others into deluding themselves that they are too enjoying an autonomous lifestyle. 

Moreover, globalisation does not obviate the political classes from ignoring the conditions of their own poor. Unfortunately, these ideas are seductive because they (the political classes) represent the status quo and it takes men of courage and vison to make real change.


  1. I have some sympathy with much of your analysis - over my lifetime I have seen inequalities become much greater and meritocracy finally exposed as the myth it always was. The problem now is perhaps not so much with those at the bottom but those with qualifications, skills and aspirations who would think of themselves as "middle class" (as most Americans do) but who are in effect being placed in competition with people from much poorer societies, and find it almost impossible to achieve the standards of success in terms of career and home ownership that was achievable by previous generations. Those with wealth and connections are to a large extent insulated from these trends.
    I cannot help but feel though that your thinking is somewhat utopian. Marxists woukd certainly say so. It is not clear to me how you can have a society in which most wealth is concentrated in the hands of under 10% of the population and at the same time one yhat is based on true individual autonomy.

  2. John, A fellow Napoleon enthusiast. Brilliant stuff. If only Blucher had had a brainwave and decided to march against the English instead! The French were a truly meritocratic army comprised of the sons of people from modest backgrounds. The English ranks were fixed within a rigid social heirachy.

    Agree with your point, though I don't see why wealth distribution should necessarily be fixed. Furthermore, if we did have a society with more opportunity for autonomy, I'd argue that we would see more wealth dispersion.

    We have pre-existing examples in more 'equal' developed societies like Germany/France/Japan etc.