Rebalancing: Globalization’s Game of Musical Chairs

16 May 2011

Monday


I received another e-mail from Wikistrat today, this one describing “The Great Rebalancing,” which they characterize as follows:

“The ‘great rebalancing’ describes a future world economy that depends less on American overconsumption (high rates of both imported goods and capital exports) and relies more on emerging markets’ domestic consumption (and thus a reduction of their export-driven growth strategies). The ‘great unbalancing’ of the global economy took a couple of decades to unfold, so it’s naturally going to take quite some time for any rebalancing.”

And they go on to say:

“While virtually no one questions the conventional wisdom regarding the West’s need to save more and import less and the East’s need to spend more and export less, in truth, the Great Convergence in income requires the continued great divergence in growth. Simply put, that’s how the relatively backward economies catch up… since the West is now stuck in a lengthy deleveraging process, the time has come for those economies to shift toward domestic consumption-led growth.”

I agree with this, except that it doesn’t go far enough, and the analysis doesn’t take us deep enough.

One point that I attempted to make in my book Political Economy of Globalization, and which I have repeatedly repeated in his forum, is that what is commonly called globalization is nothing other than the relentless expansion of the Industrial Revolution to those regions of the world that it has not yet transformed, or is only beginning to transform.

Given the origins of globalization in industrialization, I hold that the “great unbalancing,” as Wikistrat calls it, took a couple of centuries, not a couple of decades, and it will similarly require a couple of centuries (not a couple of decades) for the “great convergence” to fully converge.

One of the forces that will draw out the great convergence for a very long time is the game of musical chairs going on with the world’s supply chain. As soon as one region of the world develops its infrastructure, wages slowly begin to increase and workers demand a better way of life and more ambitious opportunities than assembling widgets for global consumption. This is rapidly happening in parts of China, and as a consequence many production facilities are being moved to cheaper economies with a more docile workforce that considers itself fortunate merely to get the jobs, regardless of what those jobs are. I came across a great item last week in the media (I think it was in the Financial Times), but I forgot to keep a record of it so I can’t cite it here, but this sort of thing is common knowledge.

VietNam and Indonesia are now attractive locations for major industries to locate their production facilities. Other regions of Asia — North Korea after the wall comes down, Burma after it democratizes, Laos and Cambodia — are likely to follow, or are already following. I expect portions of the Russian periphery will also follow. These regions crashed hard at the end of the Cold War, and some of these hollowed-out economies with decrepit infrastructure are not greatly different from undeveloped regions of the world, although their workforce is much more highly educated and more likely to be restive.

This is far from the end of the story. If the industrialization of Europe and North America was the end of the beginning, we are not yet even close to the beginning of the end. We are somewhere in the mid-point of the ongoing global transformation of industrialization. What is happening now in East Asia will happen in Africa in the later twenty-first century and in the twenty-second century. With each stage in the development of industrialization, industries will have renewed incentive to move their production facilities, and so the game of global musical chairs will continue until the entire world is industrialized.

It is only at this point, i.e., when the entire world is industrialized, that the great convergence can really begin to take shape in a sufficiently robust form that it broadly impacts the lives of the great mass of the world’s population. As I said, this process will take about two hundred years, maybe less, maybe more.

At this point I can’t resist mentioning something that I formulated in an early post to this forum, Globalization and Marxism, viz. that it can only be at this point, when the world entire is industrialized, that Marx’s predictions could really be confronted with its experimentum crusis, i.e., a condition in which the proletariat has become truly universal, and a revolution of the proletariat would be similarly universal, complete, and final.

I suspect that, when globalization and industrialization have reached a point of totality on the earth, and the industrial revolution is nearly a half millennium old, that there will be forces at work in the global economy that no one can predict today, and therefore nothing will happen as Marx (or anyone else) predicted, and therefore Marxism will never really be faced with its experimentum crusis in its pure form.

I suppose all of this makes me sound really dated, that I continue to discuss Marxism at this stage in the game, but it is important to recognize the perennial content of Marxist thought, just as it is important to recognize the perennial content of Adam Smith and Robert Malthus. At the moment of globalization’s totality, Marx and Adam Smith both will still be with us, and will still be read. However, a lot of other things will have happened in the meantime, and we will also be reading those whose names are not yet known and whose works are not yet written, analyzing economic trends that do not yet exist for an audience that has not yet been born.

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Grand Strategy Annex

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