The End of Globalization

From Global to Local: The Making of Things and the End of Globalisation

by Finbarr Livesey

Profile Books Ltd (2016)

Book Review

In From Global to Local: The Making of Things and the End of Globalisation, Finbarr Livesey challenges the common neoliberal claim that globalization is the be-all and end-all of global prosperity.

Livesey’s premise, which he supports with an impressive array of data, is that globalization peaked shortly after 2008 and the world economy is in a period of deglobalization. World trade is slowly declining as a percentage of GDP, and many companies who moved factories to the third world are improving their bottom line by reshoring them to the US and Europe.

Livesey contends that, to a large extent, last year’s vote for Britain to leave the EU and for a US president who promised to withdraw from the TPP and bring back American jobs, merely reflect an economic trend that began nearly a decade ago.

The present deglobalization was triggered by the 2008 financial crash that sucked trillions of dollars out of the global economy. However, Livesey identifies a number of other factors that influence this trend – chief among them the volatility of oil prices and shipping costs (containers must be booked months in advance) and the growing cost of labor in China and neighboring countries. At the same time, technological advances, including 3D printing and “additive manufacturing,” have led to an upsurge in “on demand” industries and consumer frustration with being limited to millions of identical mass produced items.

At present many companies find it more profitable to shorten their supply chain by producing most or all component parts locally or regionally. Between 2010 and 2015, over 1300 companies brought production back to the US. Even Apple and Google have started to reshore significant manufacturing operations.

At present three-fourths of everything bought in the US is made in the US.

Originally published in Dissident Voice

A New Economic Model to Save the Planet

plenitude

Plenitude: The New Economics of True Wealth

by Juliet Schor

Penguin Press (2010)

Book Review

The main premise of Plenitude is that neoclassical or free market economic theory falls short in addressing the global economic crisis because it fails to account for the negative ecological impacts (aka externalities*) of markets. The author Juliet Schor proposes a new economic model which addresses both environmental impacts and inequality.

Schor’s new “plenitude” model builds from ideas on downshifting and simplified living she introduced in her 1998 book The Overspent American. It’s based on four main principles.

The first involves a new allocation of time away from the market economy and a reduced reliance on money to meet individual needs. By Oct 2009, eight million jobs had disappeared in the US alone. There’s no way these jobs will ever be restored. However by reducing their hours of work (either voluntarily or involuntarily), people can make a conscious trade-off of money for time. With more time, households can increase their social networks and supports and find new ways (other than money) of procuring consumption goods.

The second principle involves diversifying away from the traditional economy by “self-provisioning,” growing and making things for ourselves instead of paying other people to do it. Schor sees distributed production facilitated by 3D printing** as a big part of this process.

The third principle is what Schor calls “true materialism,” an environmentally aware approach to consumption in which people are more aware of the ecological impact of their purchases. Rather than sacrificing a comfortable lifestyle, this might mean paying more for better quality clothes, shoes and consumer goods.

The fourth principle is restoring our investment in one another and our communities. Especially in times of crisis, these connections, sometimes referred to as social capital, are every bit as important as money or material goods.

Government Interventions Required

Despite numerous examples Schor gives of individuals, groups and cities that have already transitioned to the new model she proposes, new government policies will be essential to ensure the planet reduces its carbon footprint in time to avert ecological catastrophe.

Unlike French economist Thomas Piketty, author of the bestseller Capital in the 21st Century, she specifically opposes after-the-fact taxation to redistribute market income. She rightly points out that it fails to increase new wealth. Instead she would support a proposal put forward by Peter Barnes to set up a Sky Trust similar to the Alaska Permanent Fund. The Sky Trust would tax corporations on the carbon dioxide emissions (and possibly their destruction of habitat and discharge of toxic chemicals) and return the revenue earned as a dividend to citizens.

Secondly she calls for the adoption of social program (single payer health care, support for child care and tertiary education and reliable pensions) common in other industrial countries. She cites studies the common misperception that Americas work the longest hours in the world to acquire more consumer goods. The real reason they stick with jobs with impossible long hours and stress is because that’s the only way they can pay for health care, child care, college and a secure retirement.

Third she calls for a change in intellectual property laws to facilitate sharing new techniques and technologies) permaculture, agroforestry, biodynamic farming, cob, earthen and strawbale home construction, alternative technology, renewable energy systems) that enable more efficient use of resources.

Fourth she sees an essential government role in cleaning up toxic waterways and brownfields and restoring forests, which are also fundamental steps in restoring true wealth and reducing inequality.

Finally she would call on government to abandon their growth at all cost policies. She blames the financialization of the US economy for the pressure for constant growth. Although the sale of financial products produces no new wealth, it requires a continuous increase in economic growth to pay shareholders and bondholders.

Reigning in the Financial Sector

The main weakness of Plenitude is Schor’s failure to propose specific policies to reign in an out-of-control financial sector. In European parliaments, the main policies being explored include ending the ability of banks to create and control the money supply (restoring this function to government)*** and a financial transaction tax.****


*In economics, an externality is a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices, such as rainforest destruction.
** 3-D printing is a manufacturing process that builds layers to create a three-dimensional solid object from a computer model. Video of houses being printed in China:

***See The IMF Proposal to Ban Banks from Issuing Money
**** A financial transaction tax is a levy placed on financial institution for specific types of monetary transactions.

Why Capitalism is Failing

The Zero Marginal Cost Society

Authors at Google (2014)

Film Review

As the global economy continues to tank, it becomes increasingly apparent that capitalism is incapable of meeting the survival needs of the great majority of the planet. In the video below, economist Jeremy Rifkin explains the concept of zero marginal cost, a phenomenon that is steadily shrinking the global economy. He blames a fundamental “paradox” in the capitalist economic model. Marx also identified a similar structural flaw that would eventually cause capitalism to collapse.*

Here’s how Rifkin explains it:

All businesses have two types of costs: fixed costs and marginal costs. Your fixed costs are your initial investment in the facilities and equipment you need to manufacture products or provide services. Your marginal costs are the recurring expenses you incur to keep the business going – wages, energy, phone, stationery, paper clips, postage and so on.

Due to competition, entrepreneurs face continual pressure to increase productivity and decrease their marginal costs. In this way, they can lower their prices and increase their market share. Businesses that don’t compete effectively go bankrupt.

Over the past forty years, businesses that haven’t moved overseas, have mainly lowered marginal cost by replacing workers with machines. The advent of the Internet has speeded up this process by reducing the marginal cost of numerous products to zero or near zero.

Napster and YouTube led the way by enabling young people to download music and films for free. As the formal economy continued to shed jobs and cut wages, consumers discovered they could get news, how-to information and books for free on the Internet. This killed off the recording industry and has nearly killed off newspapers, book sellers and publishers.

How Renewable Energy, 3D Printers and Car Sharing Reduce Marginal Cost

Marginal costs are also approaching zero in other sectors of the economy. Take renewable energy. After consumers pay off their fixed costs for their wind turbines and solar panels (which takes 3-8 years), the energy they use in their homes is virtually free.

Meanwhile 3D printer technology makes it possible to produce an endless array of consumer goods at near zero marginal cost. After the initial fixed cost, the consumer downloads free software and uses recycled feedstock (in Scandinavia, they’re using recycled plastic and paper and even sand and gravel).

The growing trend by millenials to share cars, bicycles, cabs, home stays, tools and toys significantly increases the range of products and services they can get for nothing. Millions grow their own food and barter to meet other essential needs.

The Internet of Things (IoT)**

By increasing efficiency (by interconnecting devices, systems and services), the Internet of Things will further reduce the marginal cost of even more products and services. Rifkin calls this the third industrial revolution. When most goods and services are free or shared, we will no longer need vertically organized companies to serve as middlemen.

The Jobs Issue

The most obvious impact of the technological innovations Rifkin describes will be the continuing loss of jobs in the formal market exchange economy. Rifken believes jobs will be less important in an economy where people cease to rely on money to meet their basic needs. He also feels that most of the new jobs will be in the nonprofit social commons. The social commons, which has always operated in parallel to the formal market economy, is responsible for social capital, i.e. providing education, social welfare, culture, sports, community and existential meaning.

Ironically the social commons has been growing as the market economy shrinks. Between 2000 and 2010, it saw a 42% increase in revenue, while overall GDP only increased by 16%.

Why the US is Falling Behind the EU and China

According to Rifkin, who consults internationally, Europe and China are eagerly embracing this third industrial revolution. Sadly the US is still desperately propping up an archaic economic model on the verge of collapse. He contrasts China, which is investing $80 billion to roll out a distributed energy network to enable all its residents to produce their own energy, with Obama’s proposal to spend $3 billion over 20 years on a centralized “smart” and (horribly inefficient) electrical grid.***

The Flies in the Ointment

Rifkin envisions two serious obstacles that may obstruct the full roll out of the third industrial revolution. The first relates to pending legislation that would end Net Neutrality.**** Cable companies and Internet providers are lobbying hard for the right to charge a premium for Internet access. This would allow rich people priority access (faster and more expansive) to the Internet.

The second relates to profound disruptions in the water cycle (stemming from global warming) that may have disastrous implications for food production.

*Marx predicted that replacing workers with technology would ultimately cause capitalism to self-destruct. According to Marx, the only source of profit is surplus value (the difference between what you pay a worker and the value of the work they perform). There is no surplus value if you replace a worker with a machine. You have to pay a machine the full value of the work it performs.
**The Internet of Things (IoT) refers to the interconnection of uniquely identifiable embedded computing like devices within the existing Internet infrastructure. Typically, IoT is expected to offer advanced connectivity of devices, systems, and services.
***Under a centralized grid system, only 30-35% of the energy generated by a power plant comes out as electricity at the other end.
****Net Neutrality is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication.