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Beyond Globophobia | The Nation

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Beyond Globophobia

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Are globalized economies more unequal than nonglobalized ones? The consulting firm A.T. Kearney has been computing a yearly globalization index for Foreign Policy magazine. If you chart the relation of the index to country rankings for inequality, the results are not what a typical antiglobalization activist would expect.

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Doug Henwood
Doug Henwood, who edits the Left Business Observer, is working on a study of the current American ruling class, whoever...

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The relation is far from perfect, but if anything, more globalized countries are less unequal than less globalized ones. Western European social democracies are more globalized than the United States but less unequal--as is Canada, to a lesser degree. South Korea is much more globalized than Brazil but less unequal; so is Mexico. The point is not that promoting globalization would promote equality, but that the foregrounding of globalization as the cause of inequality isn't a simple case to make. Income distribution depends more on domestic institutions like unions and welfare states than on internationalization.

Of course, this is hardly a rigorous exercise, and it compares levels at one given moment. Has "globalization" contributed to inequality? While it's an article of faith among activists that it has, it's actually quite difficult to prove the case either way: It all depends on how you define and measure. Most studies by economists focus on recent history--but over the long term, global income gaps have widened considerably. According to economic historian Angus Maddison's estimates, African and American incomes were roughly equal in 1600 (because the Americans measured were the native population), but with industrialization, they started diverging in earnest. American incomes were three times Africa's in 1820, five times in 1870, ten times in 1913, and twenty times in 1998. When was the moment of "globalization"?

Capitalism has always produced poverty alongside wealth, and capitalism has from the first been an international and internationalizing system--so it makes little sense to try to isolate the "global" aspect as the major culprit in the production of inequality.

The MNCs

Those who identify globalization as the major force behind the production of inequality frequently point to an alleged "race to the bottom," driven by multinational corporations (MNCs), which constantly ransack the globe searching for low costs and high returns. This case isn't easy to prove either.

If you look at the distribution of investment by US multinationals abroad, several things stand out. First, such investments are overwhelmingly located in rich countries. Over half is accounted for by Western Europe, Canada adds another 10 percent and the richer countries of Asia, 8 percent. So more than two-thirds of the total stock of US foreign direct investment is in countries with incomes roughly comparable to ours. Throw in the four classic Asian Tigers, and you've got more than three-quarters of the total. The poorer countries of Europe are home to less than 1 percent of US foreign investment, and China, even less. Mexico accounts for just 3 percent of the total stock, not much of an increase from 1980. That's not to say that Mexico isn't important in certain industries (like autos and electronics), or that it isn't an important club that employers use to scare workers--but the relocation of production to Mexico isn't quite the driving force of economic evolution that it's sometimes thought to be.

The poorer countries aren't the profit gushers one might expect either. Rates of return in Mexico are high, but Switzerland's are higher, and Latin America's overall figure is below Canada's and Western Europe's.

Another image in need of a rethink is that of a "global assembly line." The share of world output accounted for by US multinationals has changed little over the past two decades: It was 9 percent of world product in 1982 and 8 percent in 1999. And the output of US MNCs is overwhelmingly domestic; 76 percent of their output in 1999 was within these borders, almost exactly the same share as in 1982. Over the same seventeen-year period, old-fashioned exports have actually grown faster than production by US multinationals abroad. Output by foreign branches of US multinationals accounted for less than 2 percent of world product in 1999, a share that has changed little over the past two decades. Their operations in Mexico accounted for 0.1 percent of world product. These are not large numbers.

That's not to say that production isn't being internationalized in some areas. But it's concentrated mainly in a few industries--autos, electronics, textiles. And the multinationalization that has occurred is much more selective than global. Auto production, for example, is increasingly integrated among the three NAFTA countries, neighbors with long borders and long ties. In this case, "regionalization" is a better description than "globalization."

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