The Destabilizing Consequences of Globalization
Gordon T. Long and I discuss the failure of the status quo’s “New Normal” in a new 34-minute YouTube program.
It is not possible to coherently discuss the “New Normal” economy without discussing financialization–the substitution of credit expansion and speculation for productive investments in the real economy–and its sibling: globalization.
Globalization is the result of the neoliberal push to lower regulatory barriers to trade and credit in overseas markets. The basic idea is that global trade lowers costs and offers more opportunities for capital to earn profits. This expansion of credit in developing markets creates more employment opportunities for people previously bypassed by the global economy.
Though free trade is often touted as intrinsically positive for both buyers and sellers, in reality trade is rarely free, in the sense of equally powerful participants choosing to trade for mutual benefit. Rather, “free trade” is the public relations banner for the globalization of credit and markets that benefit the powerful and wealthy, not the impoverished.
Financialization and mobile capital exacerbate global imbalances of power and wealth.
Trade is generally thought of as goods being shipped from one nation to another to take advantage of what 18th century economist David Ricardo termed comparative advantage: nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently.
While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of financialization and the mobility of capital. In a world dominated by mobile capital, mobile capital is the comparative advantage.
The mobility of capital radically alters the simplistic 18th century view of free trade.
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