Poverty, climate change, the breakdown of democracy, an epidemic of depression – the world is facing a convergence of crises.
The cause? Economic globalization.
What is Globalization?
Economic globalization is a process defined by the deregulation of trade and finance in order to enable businesses and banks to operate globally. Since at least the mid-20th century, national governments and international institutions have been nearly unanimous in supporting globalization, often through policies that prop up large transnational corporations to the detriment of small and local businesses. With the help of these policies, a single world market has emerged.
Corporate-funded think tanks and media outlets would have you believe that this global market is characterized by the free flow of ideas and technology, international collaboration, interdependence, and a worldwide sense of community – in other words, that the global market has created a ‘global village’.
But the reality is far different from this rosy picture. Our global economic system has become so large and complex – with producers and consumers, CEOs and workers, and cause and effect all far removed from each other – that ethical choices are almost impossible to make, and environmental and human rights disasters have become commonplace.
It can be challenging to understand the workings of a system that is so vast, out-of-control, and deeply ingrained into the fabric of our daily lives. But by breaking the global economy down into five key structural elements, and understanding how it came to exist in the first place, we can begin to comprehend it – and, ultimately, resist it.
We’ll begin with a look at globalization’s origins.
The Origins of Globalization
The modern global economy is the culmination of a process of conquest and colonialism that began 500 years ago, when European powers spread an extractive economic system – one reliant on slavery, the destruction of local cultures and economies, and the imposition of monocultural ideas and practices – all across the world.
Watch the following short extract from our film The Economics of Happiness for a brief overview of how slavery, debt, and corporate control have shaped the global economy.
Key Features of Globalization
As an economic system, globalization can be broken down into five key structural elements, each of which feeds into and supports the others. Use the tabs below to explore these five elements.
Large corporations now exert unprecedented influence over policymaking and the media, but are unaccountable to voters or elected officials. Many corporations are so big that they wield more economic and political power than national governments; in 2017, out of the 100 largest economic entities in the world, 69 were corporations.
Most of this power has been handed over to corporations by national governments. ‘Free trade’ and investment treaties, for example, typically include Investor-State Dispute Settlement (ISDS) clauses, which give corporations the right to sue governments over policies that might reduce their expected profits – such as domestic labor laws that mandate humane working conditions, or rules that limit pollution.
The global economy demands continual economic growth and development in order for it not to collapse. The process of industrial development requires that ‘developing’ countries (mostly in the global South) invest in energy, transportation, and other infrastructures geared towards export-oriented industry and agriculture. Countries in the global South have been convinced that this is their only path to prosperity, and that they must borrow large amounts of capital to finance huge infrastructure projects. But this borrowing leaves them vulnerable to the vagaries of the deregulated global financial system: if prices for their exports decline, for example, countries may be unable to repay their loans. They may then be pressured to undertake ‘structural adjustment’ programs as the price for further loans. These programs force them to reduce spending on beneficial social programs, open themselves up further to outside investment, and provide more funding for trade-based infrastructure.
In an attempt to escape this spiral of debt and dependence, many countries trade away their natural resources to repay their loans. Even the ‘rich’ countries of the North frequently end up caught in this system: transnational corporations are increasingly able to bargain with national governments for lower tax rates and higher subsidies by threatening to ‘offshore’ their operations.
97% of the money in circulation today is backed only by debt; each time a bank issues a loan, money has been ‘created’ out of thin air. Much of this money is then invested in speculation – bets on corporate stocks, the fluctuation of exchange rates, and the price of agricultural commodities, to name a few. The ‘phantom wealth’ thus generated is totally unconnected to the creation of anything of real value or utility.
Financial deregulation – the elimination of obstacles to foreign investment and speculation – has allowed massive amounts of this phantom capital to flow across borders at the click of a button. Bets on exchange rates can cause currencies to crash, instantly changing the prices of imported goods on which people have become dependent. Bets on agricultural commodities are playing dice with food costs for millions of people, and with the incomes that farming families rely on for survival.
This deregulated financial system is highly unstable, and it is therefore not surprising that the frequency and severity of financial crises has increased over the past decade. As economies have become more interconnected, these crises have also become more contagious, spreading quickly from one country to another.
In the hope of improving their economies by attracting and retaining big businesses, governments worldwide routinely hand out hundreds of billions of dollars in direct subsidies to transnational corporations through tax breaks, market access programs, production subsidies, loan guarantees and more.
Governments also provide indirect or hidden subsidies to big businesses, including fossil fuel subsidies that artificially reduce the cost of long-distance transport, and investments in infrastructure such as centralized power plants and shipping terminals that disproportionately benefit large companies. The costs of these businesses’ negative impacts on the climate, human health, and the environment are ‘externalized’ – i.e. paid for by society and the natural world.
Free trade and investment treaties allow corporations and foreign investors to move in and out of countries in search of ‘investor-friendly environments’ – places where labor, environmental, and health standards are weakest, and where the most profit can be extracted for the lowest cost. In conjunction with the subsidies given to fossil fuels and other extractive industries, these treaties have fueled an explosive growth in international trade, which is almost 32 times greater in volume now than it was in 1950. And redundant trade – where countries import and export nearly identical quantities of identical products – is now commonplace.
The economic theory of ‘comparative advantage’ leads some to claim that trade deregulation creates ‘efficiencies’ that work for the good of all. But this 18th century theory does not account for the trillions of dollars in direct and indirect subsidies that prop up the system, distort market prices, and mask the true costs – both economic and ecological – of unregulated global trade.
Taken together, these structural elements have had devastating effects on people and the planet. We’ll run through those effects next.
Costs of Globalization
A fish served in a California restaurant may have been caught illegally on a Thai fishing vessel manned by slaves. A t-shirt bought in Germany may have been sewn in a Bangladeshi sweatshop, where workers labor in unsafe conditions for starvation wages. The rising consumption levels of India’s middle class may be contributing to climate chaos thousands of miles away.
In the long term, the increasingly globalized economy has no winners. Small farmers, the poor, and the disenfranchised have been the first to suffer its most devastating consequences. But as the economic, social and environmental costs of globalization mount, not even the wealthy will escape its impacts. These include:
1. Loss of Livelihoods
All over the world, jobs are lost when big business displaces local businesses. For example, the giant online marketer Amazon employs about 14 people for every $10 million in retail sales, while main-street shops employ 47 people for the same amount of sales.
2. Environmental Breakdown
Globalization intensifies the ecological consequences of industrialization. Corporate agribusinesses poison topsoil and let it wash out to sea. The timber, oil, and mining industries clear-cut millions of acres of irreplaceable forest each year. Pollution is destroying ecosystems worldwide and species extinction is accelerating rapidly.
3. Lack of Resilience
Because globalization encourages countries to specialize their production, most now rely on imported goods to meet basic needs.
4. Erosion of Democracy
The hypermobility of corporations, the creation of money by deregulated banks, and the cozy relationship between government and big business have resulted in a profoundly undemocratic global order. Political power is becoming centralized into unelected, unaccountable bodies like the World Trade Organization (WTO), the International Monetary Fund (IMF), and the European Commission, steadily shrinking the influence of elected officials on policy decisions. And when political parties on both the left and the right embrace the wishes of corporate interests, voting can seem all but meaningless.
5. Growing Wealth Gap
The wealth of the world’s 8 richest people now equals that of the poorest half of the world’s population – more than 3 billion people – and economic inequality is worsening, due to the increasing power of corporate rule.
6. Unhealthy Urbanization
Globalization erodes rural economies, leading to massive population shifts from rural areas to cities. In 2003, a staggering 1 billion people lived in urban slums, a number expected to double by 2030. Many of these people were displaced from rural communities to make way for ‘development’ projects, or lured to the cities by the promise of jobs and a better life.
7. Loss of Food Security
Multinational corporations are successful only if they can market on a large scale for a huge number of homogenized consumers. The result has been a 75% decrease in the world’s agricultural diversity over the last half-century; this narrowing of the genetic base puts food security at risk worldwide.
8. Declining Health
Industrialized societies are currently experiencing unprecedented rates of obesity, diabetes, heart disease, and cancer. Processed food, pollution, sedentary jobs, and a sense of isolation – all side-effects of globalization – are contributing to a worldwide decline in well-being.
9. Psychological Costs
In traditional societies, personal identity is grounded in deep community ties and a connection to place. In the modern economy, increasing mobility, competition, and dependence on a centralized market have eroded these relationships, destabilizing our sense of security and belonging. Vulnerable, isolated individuals become easy targets for advertising messages telling them that just one more consumer purchase will enable them to meet artificially imposed standards of looks, lifestyle, and material ‘success’.
Every day, people across the world are bombarded with imagery that presents the modern Western consumer lifestyle as an ideal, while implicitly denigrating local traditions and land-based ways of life. The prevailing message is that urban is sophisticated and rural is backward. No matter who you are or where you live, the consumer monoculture imposes expectations that are impossible to fulfill, fueling feelings of insecurity and leading to epidemics of depression, anxiety, and addiction.
10. Violence and Conflict
The rise of ethnic, racial, and religious tensions around the world is in large part a predictable effect of an economic system that promotes a global consumer monoculture while at the same time heightening economic insecurity. Far from being the pathway to international cooperation, globalization has actually had the opposite effect, driving wedges between countries, between ethnic and religious groups, and between individuals.
Moving Beyond Globalization
If you’re feeling overwhelmed by the enormity of the global economic system, you’re not alone! It’s easy to feel helpless – but consider that the global economy is man-made, and therefore can be changed. The course that has been set for us is neither inevitable nor fixed, and we can choose to shift direction.
Next, read through our learning guide on localization for an overview of what that shift could look like.
What is Localization?
If economic globalization is the root of so many problems, then localization – an economic shift away from the global towards the local – offers a systemic answer.