Globalisation is a hotly contested issue. While some see it as a benevolent force that reduces poverty and inequality around the world, others claim it perpetuates these same problematic patterns. In this blog post, Dahrendorf Forum Research Associates Marcel Hadeed and Marie Wachinger sketch out the debate around the advantages and disadvantages of economic globalisation and what it means for European politics.
The globalisation of the world’s economies is one of the pervasive phenomena of our time. An international research group of over 100 scientists including renowned economist Thomas Piketty recently presented the first comprehensive account of its redistributive consequences: the World Inequality Report 2018. Their results challenge dominant perceptions of globalisation as a “win-win” situation and provide fodder for honest debate.
The shape of globalisation
In its economic sense, globalisation refers to the intensification and increase of trade around the world. Proponents argue that globalisation is good for everyone: the economic periphery benefits from access to the outlet markets of the economic core, helping the former to create jobs to support rising middle classes and the latter to lower prices and increase profit margins; competition provides cheaper products and more choice for all.
With regard to economic inequality, a common argument of defenders of globalisation goes as follows: Due to globalisation, inequality within societies increases. However, this trend is offset by two factors: First, the net-positive added value (winners win more than losers lose) allows for more generous redistribution. Second, inequality between societies decreases to a larger degree than inequality within societies grows. Thus, from a global perspective, inequality decreases.
Recent years have shown, however, that the effects of economic globalisation are more complicated than they appear at first glance. Critics associate it with untamed multinational corporations exploiting the poor, creating destructive global capital flows, and evading taxes, pushed by a neoliberal macroeconomic agenda. These terms and the forces to which they refer have a negative connotation and provoke strong emotions, as exemplified by the intense and violent protests to the last G20-Summit in Hamburg last year. Such summits invite heated criticism, inspired by a range of motivations, from (legitimate) fears of outsourcing (often low- and medium-skilled) jobs to (less legitimate) conspiracy-theory fuelled allegations of world domination by ruling economic elites.
Consequences of economic globalisation
Given the ambiguity of debates around economic globalisation, can it be seen as a force for good? The World Inequality Report, by focusing on the redistributive consequences of economic globalisation, provides some sober (and sobering) evidence on the social consequences of globalisation.
The main finding of the report is that the distribution of wealth is staggeringly unequal. Since 1980, the top 1 percent of wealth holders gained twice as much from global economic growth as the bottom 50 percent. While the report cannot measure redistributive activity (as it doesn’t account for different tax systems in different countries), the OECD has found that its member states continue to shift of the tax burden away from capital and large corporations and towards consumption and labour. A great redistributive offset of growing societal inequality is thus absent. Moreover, the World Inequality Report found that inequality within societies is growing faster than it is shrinking between societies, so net inequality is growing. The top 1 percent of the world’s population captured 27 percent of global growth while the share of the bottom 50 percent has consistently declined over the last 30 years. While some economists have claimed that trickle-down economics would “lift up” the bottom 50 percent, the report shows this to be untrue.
Importantly, the report points out that unequal growth distribution is not inevitable: In Europe, the region with the longest and most pronounced history of welfare statism, inequality is growing slowest, and could in theory be reversed by stronger regulatory mechanisms. Nonetheless, Europe is not insulated from the effects of inequality elsewhere and domestically, which today profoundly shapes its politics.
Implications for political conflicts, especially in Europe
Effects of inequality on European foreign policy
In recent years, an increased number of people have migrated to Europe in search not only of asylum, but also of better economic prospects. This has been a challenge for European policy as well as its foreign policy. For example, the highly controversial refugee deal between the EU and Turkey was viewed by its defenders as a measure to maintain the Schengen agreement, and by critics as a “dirty deal” in terms of foreign policy for indirectly tolerating human rights abuses in Turkey.
The driving forces behind international migration are diverse and complex. They include forces such as armed conflicts and economic crises, which often arise out of inequality. Global inequality has a direct effect on global migration. Europeans have responded to the latest inflow of migrants with widespread anti-immigration and anti-immigrant sentiments. Right-wing populist parties that capitalise on this sentiment are on the rise in a worrying number of countries and represented in many governments. Perhaps Europeans would be less susceptible to populist anti-immigration rhetoric if inequality within their own countries was lower.
Effects of inequality on European domestic politics
History shows that populist agendas find fertile ground when people face existential fears. In Germany, a recent study found that the fear of losing socio-economic status was the underlying motivation for many voters to vote for the right-wing party AfD (Alternative for Germany). The refugee crisis was merely the catalyst for stoking this fear.
These existential fears can be directly related to inequality: Another study revealed that the bottom 50 percent of Germans have as much wealth as the top 45 households, lending credence to the perception that there is not enough to go around.
How is this possible if GDP is continuously rising? Again, it is about the distribution of resources—this time not between individuals, but between the public and private domains. The World Inequality Report shows that “since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. Arguably this limits the ability of governments to tackle inequality; certainly, it has important implications for wealth inequality among individuals”. This mass privatisation and lack of public investment is directly visible to the population. It manifests itself in growing waiting lists for social housing, rationalised care in private hospitals, and so forth.
Global inequality contributes to Europe’s current political crisis in intricate ways: When economic growth is captured by the few, resources for the many become scarce. The relative decline in public wealth means the state has ever fewer resources to compensate for the lack of economic prospects for the individual. International migration then worsens the perception that there is not enough to go around. This is the cause of the anti-immigration rhetoric we currently observe. In this threefold manner, global inequality furthers the danger of populist politics. To stop the rise of populism, politicians will need to counter the effects of economic globalisation. The World Inequality Report 2018 serves as a basis to open this dialogue.
Tom Krebs, T. and Scheffel, M. (2017) “Öffentliche Investitionen und inklusives Wachstum in Deutschland” Bertelsmann Stiftung https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/NW_OEffentliche_Investitionen_und_inklusives_Wachstum.pdf
Marcel Hadeed is a Dahrendorf Research Associate at the Hertie School of Governance.
Marie Wachinger is a Dahrendorf Research Associate at the Hertie School of Governance.