Globalization 2.0 is a challenge for the world economy

People are striking back. The growth of global trade has been tremendous since the second world war. For many decades international trade has grown on average nearly twice faster than world production. Nations have become more prosperous, but many people all across the globe feel that they have not given their fair share of this growth. The first and extended period of globalization is over. Welcome to the world of globalization 2.0. 

Brexit was first striking rejection of globalization. British people felt that diminished job prospects and stagnant salaries were a direct result of too open borders and liberal trading practices. The same discussion is now apparent in US presidential election, where Donald Trump wants to turn the tide of free trade completely and isolate American economy. 

World trade has grown continuously during the last two centuries. Trade rose from one-thirtieth to one-third of world production from 1800 to 1913. After first world war business took another leap, and during the last 30 years the world has become entirely interconnected trade and manufacturing space. Newly industrialized countries or NICs have created millions of industrial jobs - and western countries like USA and EU area have lost them on the same scale. In United States manufacturing lost five million jobs between 2000 and 2015. 

“ The total number of hours worked in U.S. manufacturing has declined at a 1.3% annual rate since 1979. This is very close to the rates of decline in Belgium, Finland, Germany, Japan, and other countries with high-income levels”, writes economist Marc Levinson in CRS Insights -report, published in 2014.

Secure jobs in highly developed countries are not available anymore as we expected to have during the last 30 - 40 years. This development affects all sectors from agriculture to industry, from service professions to public administration. Automation, ICT, and global trade patterns have changed all that. Employment is now a big political issue like in the 1930s. When societies at the same time meet challenges of refugees, worsening economy and unstable political systems, it is clear that we have a problem at hand. The backlash to closed borders, Brexit, and re-emergent populist parties are all symptoms of globalization and rapidly changing technology.

Technology is both culprit and possibility. It advances ever greater speed and even if we wanted, we can not stop it. We may even close the borders, even if it not advisable, but then we shoot ourselves in our foot. We can not halt the spread of new ideas, the spread of new technology, which in essence rest on new ideas. To stop globalization is not the answer. To try to manage it in certain degree may be possible, but the main medicine is in education and training, in investments and in more equally distributed income. 

The fastest solution at society level is to ease the situation would probably be to distribute income more equitably. In fourth industrial revolution (or the Second Machine Age) we are soon in a situation, that standard market-based employment mechanisms do not work satisfactorily. The automation advances to new professional domains like medicine and engineering, to kitchens and insurance claim handling. More and more mental work is done even now by artificial intelligence, which is evolving by leaps and bounds. 

Erik Brynjolfsson and Andrew McAfee write insightfully of this problematics in their book The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. We need to understand the power of technology in the economy. The new intelligent technologies add tremendous value to products and production processes. They affect also how society distributes income and profits between different social strata. Social strata mean people like you and me.

The economy needs people who have buying power. If we have fewer people that are employed, or they are not earning enough, we ruin our societies. Negative taxation or other new forms of basic income are needed to ensure that the people can live a normal life, and national economy will work efficiently even in the case there are not enough jobs for everybody. 

The first long round of globalization made the world a single trading area. Globalization 2.0 means that we must take care of the people and mind more about their welfare than the interests of faceless capital.