Poverty, climate change, the breakdown of democracy, an epidemic of depression – the world is facing a convergence of crises.
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.
Corporate-friendly think tanks and media promote the idea that economic deregulation has made the world into one global village, defined by the free flow of ideas and technology, international collaboration, interdependence, and a worldwide sense of community.
But the reality falls far short of this ideal. Our global economic system is so large and complex – with producers and consumers, CEOs and workers, and cause and effect all far removed from each other – that ethical choices become almost impossible, and environmental and human rights disasters all but inevitable.
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. In this short primer, we’ll start with the global economy’s origins in European colonialism, then move to the system’s key drivers and structural elements, and finally to its consequences for people and the planet.
The Origins of Globalization
Globalization is an economic process centered on deregulating trade and finance in order to enable businesses and banks to operate globally, leading to the emergence of a single world market dominated by transnational companies.
It is a continuation of the 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.
The global economy can be broken down into 5 key areas:
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 2016, of the 100 largest ‘economies’ in the world, 69 were corporations.
Most of this power has been handed over to corporations by national governments. ‘Free trade’ treaties, for example, typically include Investor-State Dispute Settlement (ISDS) clauses that give corporations the right to sue governments over policies – such as domestic labor laws that mandate humane working conditions, or rules that limit pollution – that might reduce their expected profits.
In the hope of improving their economies by attracting and retaining big businesses, governments worldwide 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’ – paid for by society and the natural world.
Free trade treaties and agreements allow corporations and foreign investors to move in and out of countries in search of ‘investor-friendly environments’ – where labor, environmental and health standards are weakest, and where they can extract the most profit for the lowest cost. Together 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.
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. This ‘phantom wealth’ this speculation generates is unrelated 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.
The process of industrial development requires that ‘developing’ countries 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 the only path to prosperity, and that they must borrow large amounts of capital to finance huge infrastructure projects. They become vulnerable to the vagaries of the deregulated global financial system: if prices for their exports decline, for example, countries may be unable repay their loans. They are then pressured to undertake ‘structural adjustment’ programs as the price for further loans; these programs force them to reduce social spending, to open up further to outside investment, and to provide more funding for trade-based infrastructure.
Attempting 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 are 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.
Costs of Globalization
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:
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 2005, 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 us that just one more consumer purchase will enable us 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 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. Economic globalization is often thought of as the pathway to international cooperation and the creation of a ‘global village’. But globalization has actually had the opposite effect, driving wedges between countries, between ethnic and religious groups, and between individuals.
Moving Beyond Globalization
The global economic system may seem unstoppable and impossible to transcend. But it 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.
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.