Why is globalization in society inevitable

Free trade versus protectionism

Niko Paech

Niko Paech is an adjunct professor in the field of plural economics at the University of Siegen. The economist and sustainability researcher is considered one of the leading theorists of a post-growth economy.

Anyone who, like Donald Trump, demands or even implements trade restrictions is quickly confronted with accusations of nationalism. But globalization actually creates considerable risks, says growth critic Niko Paech.

The social and ecological consequences of a growth economy can hardly be controlled. Abandoned coal production facilities on Svalbard. (& copy picture-alliance, chrome orange)

Within the sustainability discourse, it is increasingly being questioned whether the growth orientation of modern economies can and should be continued. It therefore seems necessary to take a critical look at the role of international trade. This was never justified other than with the fact that all participating countries can achieve a higher level of goods prosperity than in a self-sufficiency situation. Nevertheless, the current controversy about open borders, trade relations and European integration efforts - albeit only superficially - conveys a different picture.

Niko Paech (& copy Michael Messal)
Those who support "Brexit" or trade restrictions like those advocated or even implemented by US President Donald Trump are often confronted with accusations of nationalism - as if the foreign trade volume per se indicates the relevance of a policy of foreclosure. Anyone who does not use the option of increasing the volume of trade must allow themselves to be denigrated as nationalistic - this was also shown by the controversy over TTIP and CETA, the EU trade agreements with the USA and Canada.

If the hasty criticism of nationalism is removed from all ethical disguises, all that remains in the end is the truism that trade barriers would reduce added value, sales opportunities, income and profit opportunities, jobs and the variety of consumption opportunities. This reveals how politically correct snap reflexes serve to hide a simply crafted growth agenda.

Meanwhile, various discourses are spreading, from which the thesis is justified that further economic growth is no longer an option for making modern industrialized countries responsible. Increases in gross domestic product (GDP) fail due to foreseeable resource bottlenecks. [1] The decoupling of the prosperity, which cannot be stabilized without GDP growth, from the resulting ecological damage lacks any theoretical and empirical basis. [2] Contrary to popular political beliefs, growth does not per se eliminate disparities in distribution either. [3] Findings from the so-called "Science of Happiness" [4] also show that economic growth does not generate any further increases in life satisfaction after reaching a certain level of prosperity.

Division of labor leads to organized irresponsibility

The highly specialized and spatially unbounded division of labor, without which constant growth is not possible, inevitably leads to a complex system of "organized irresponsibility" [5], because the social and ecological effects of economic actions can no longer be controlled. With increasing spatial expansion and economic interdependence, vulnerability also increases, i.e. the vulnerability or susceptibility of the dependent supply systems to crises. [6]

The spatial and functional differentiation in the production of goods or services has a decisive consequence: To the extent that the responsibility for an overall process is distributed over a sufficiently large number of competencies, it is, as it were, extinguished. Each actor who only works on a partial aspect within complex process chains follows their own functional rationality resulting from the isolated task area. The ecological and social consequences of the entire process remain invisible to him, because between the emergence of a need and the production triggered by it, there are innumerable individual transactions linked together over considerable distances. By delegating the execution over many stages, a "mediatization" occurs [7], that is, a mediation of actions. These are generally carried out by a third party who "stands between me and the consequences of my actions, so that they remain hidden from me" [8].

The global industrial division of labor requires the "depersonalization" of those people who are directly affected by the consequences: "Responsibility, the basic element of moral behavior, arises from being close to the other. Proximity means responsibility and responsibility is closeness". [9]

The often-used argument that poverty and inequality can be alleviated through growth, which in turn can be increased through free trade, also turns out to be ambivalent. Poverty economies in particular are often advised to focus more on the international division of labor in order to increase prosperity. Pointing the way for economic development are no longer domestic demand patterns, but the world market. This presupposes a structural change that allows the internationally competitive industries to grow, but at the expense of other areas, which are consequently shrinking. Ultimately, this can lead to the situation of the poorest parts of the population deteriorating. This applies, for example, to the rural and indigenous populations of Brazil or Bolivia.

According to the Stolper-Samuelson theorem (1941) [10], the decisive postulate of foreign trade theory, according to which free trade would increase national income, is always associated with losers and winners. The "punch line", however, is that the losses in the shrinking industries are exceeded by the increases in the areas that benefit from trade, that is to say that the national income is growing net. As a result, the winners could compensate for the losers - and still see income growth.

To do this, however, it would be necessary for the laid-off workers to be absorbed by the prospering sectors. Since the shrinking sectors in developing and emerging countries are mostly agricultural, handicrafts, and often even subsistence economies - that is, if possible, produce all the goods they need themselves - training, cultural competence and mobility of the workers concerned are hardly compatible with the requirements of the booming sectors. Eliminating this incompatibility through retraining measures is seldom successful at best, because this may require retraining illiterate computer experts and relocating them to a completely new cultural context. The misery in Rust Belt ("Rust Belt"), once the largest industrial region in the USA, shows how difficult this re-integration is even under comparatively favorable conditions. Incidentally, it can fail due to the time required for this, because in the meantime the additional employment needs in the growth sectors could be satisfied by qualified labor migrants from other countries. In addition, today's booming industries have an increasingly high level of technology and automation, which means that, despite significant growth rates, there is only a small demand for additional workers.

Of all people, Samuelson, who was one of the founders of the free trade theorem at the time, later stated that, firstly, under the conditions of globalization (i.e. capital mobility) that have meanwhile become relevant, the achievement of net profits through free trade is questionable. [11] In addition, he often stated, he was hardly aware of any examples showing that the inevitable losers of free trade had ever been compensated.

Vulnerability as a companion of unlimited supply systems

The shaky architecture of the value chains spanning the globe is revealed whenever a financial crisis or diplomatic upset looms as a result of imbalanced trade relations. The complex and spatially diffuse supply matrix can be brought down simply by the fact that a resource that cannot be substituted becomes scarce at a crucial point.

The world trading system has never been more dependent on oil than it is at present - and the trend is rising. The conflicts over scarce raw materials such as rare earths and strategic metals as well as globally outsourced cultivation areas are also increasing. The wealth brought about by international specialization thus conjures up a fatal alliance: increasing height of fall meets increasing instability. Modern societies are increasingly shedding their economic autonomy and resilience. To the extent that the number of industrialized and emerging countries whose prosperity hangs on the thin thread of a globalized and consequently fragile external supply increases, rivalries arise over remote sources of resources, areas, sales markets and spheres of influence. The areas of conflict created in this way have anything but peacemaking effect on foreign and security policy.

A return to the self-sufficient production structure is usually impossible because the transition to the free trade solution is the result of a far-reaching structural change.

In the course of this transformation, not only new industries, production facilities and infrastructures are created, but previous supply patterns are destroyed: people are leaving regional networks, giving up previously cultivated areas, developing higher consumer demands, unlearning practices of self-sufficiency and instead acquiring qualifications that enable them to do specialized gainful employment go hand in hand with an urban lifestyle. This change is irreversible in the short term because it is based not only on a production-related, but also an infrastructural, social and cultural transformation. Consequently, the tempting chance of increasing material wealth promised by a consumer lifestyle embedded in the international division of labor is bought at the cost of a considerable social fall. [12]

Foreign trade in the post-growth economy

In order to treat the system of organized irresponsibility and vulnerability adequately to the cause, it would be inevitable to shorten process chains in order to regain transparency and control. Supply patterns that are partially based on self-sufficiency and local exchange relationships guarantee only moderate wealth in goods, but they are safer from crises. As early as 1957, Kohr spoke of the "small unit principle" of regional economic activity.

On the supply side, the post-growth economy [13] required for this would correspond to the combination of three supply systems:
  1. global industrial division of labor,
  2. Regional economics and
  3. modern subsistence.
Such a multiple supply increases the resistance to crises and reduces the pressure to grow, because less capital-intensive generation is typical for the last two dimensions mentioned. This could devote itself to essential goods in order to guarantee autonomy and resilience, especially food security. Subsistence and the regional economy thus served to complement a concisely declined industry, which nonetheless still includes international trade - but only while maintaining economic independence. A specialization level could be aimed at, which allows trade advantages compared to the self-sufficiency solution, but is limited in such a way that in the event of a crisis a quantity of essential goods necessary to secure a livelihood can still be produced in-house.