Current events are exposing the limits of globalisation.
IT may not be easy to join the dots between the riots in Athens, failed stock exchange mergers and criticism of foreign investment in the Australian mining industry, but there is a connection – globalisation.
More accurately it should be called the end of globalisation, because that’s what we seem to be watching as the world moves back to an era called ‘every man for himself’.
Hailed for much of the past 30 years as a way to stimulate economic growth, globalisation is a phenomenon that might have reached its use-by date.
The biggest issue is that more people today seem to be suffering from globalisation than enjoying its theoretical benefits.
For a trading country such as Australia, especially its most trade-exposed states of Queensland and Western Australia, the death of globalisation will bring a fresh set of challenges, including a possible decline in mineral demand as more countries look to satisfy their raw material requirements from internal sources, even if they are lower quality and more expensive than alternative supplies.
No-one has yet blown a whistle and said the great globalisation experiment is over, but they might soon given the sort of events we’re watching. Consider these examples.
Greece, and the other PIGS of Europe (Portugal, Ireland, and Spain) are sliding toward the status of failed states because much of what they produce is no longer globally competitive. They are being put out of business by cheap Asian imports, which can be sold in the PIGS under the free-trade rules that are a key plank in globalisation.
Plans for another round of free trade talks within the World Trade Organisation have hit a stumbling block, with nation-states increasingly protective of their own economies. Tariff barriers, which have been falling around the world, are starting to be rebuilt as countries move to protect their home-grown industries, and domestic jobs.
Attempts to merge stock exchanges, such as Australia and Singapore, and London and Canada have failed because of national pride in a country controlling its own capital market.
Nationalist politicians are starting to question the benefits of foreign capital inflows. Rather than being seen as an aid to industrial development, foreign funds are now being seen by some critics as ‘selling the farm’.
Europe – arguably the world’s grandest experiment in creating a free-trade zone that permits the seamless flow of goods and services across national borders – is faltering because some countries (the PIGS of southern Europe) lack the work ethic and discipline of Germany and other northern European states. The region’s currency, the euro, is now causing more problems than it fixed with a push by some countries to revert to their own currencies so they can enjoy the benefits of reduced exchange rates to aid their exports, as Britain and Sweden are doing.
Resentment towards China – as it scours the world for raw materials and exports low-priced manufactured goods (while also behaving in an anti-competitive manner with some of its exports, such as rare earths) – is growing.
The core problem is that the Chinese way of doing business, as a unified government-controlled entity, is putting enormous pressure on smaller countries.
For Australia, the end of globalisation and a return to a time when every country acts in its own self-interest, which is where we are headed, could prove very tricky, especially when it comes to the search for a common set of laws governing carbon pollution reduction.
Flying solo with a carbon-tax scheme, and waiting for the world to follow, could prove to be an expensive exercise, especially as the world doesn’t seem to be agreeing on much these days.
GREECE is not alone in facing a high financial hurdle; there is another country struggling to balance its books, and if it defaults on its debts then we will indeed have seen the end of globalisation, and a near-certain rush to buy gold.
The country in question is the US, which for the past 100 years has been the backbone of economic and political stability.
But the US is edging ever closer to a crisis of confidence as its national debt continues to rise and right-wing politicians start to play games with the country’s debt ceiling.
Brinkmanship, the fine art of taking a crisis to breaking point before giving ground, is being played out between Republicans and the administration of President Obama.
Being kicked around is a process by which the US Congress (senate and house of representatives) sets a debt ceiling on how the country can borrow. Over the past two decades the ceiling has been raised just in time for the Treasury to pay the wages of government employees, and the interest on government debt.
The next crunch date for this standoff between the administration and Congress is August 2, the date nominated by Treasury when, if the appropriate laws are not enacted, the country defaults on either wages or interest payments.
To say the least, this is a dangerous game to be playing as the world crawls out of the GFC and tries to find a ‘new normal’; but it is also one of the best poker games in town.
EUROPE and the US are not alone in dodging debt bullets. China too has its problems, though they are mainly confined to local governments, and the corporate bond market.
At the regional government level, debts are said to have topped $US1.7 trillion, run up by regions struggling to provide services to an increasingly wealthy and demanding population.
At the corporate bond level there are grave fears that at least one Chinese borrower might default, triggering a rush by international lenders to recoup the estimated $US30 billion loaned to companies.
Top of the possible default list is Sino Forest, a business recently labelled as a giant Ponzi scheme, similar to that operated by jailed fraudster, Bernard Madoff.
“Nationalism is an infantile disease. It is the measles of mankind.”