For all the benefits of globalization, recent political events have revealed that its effects are not entirely benign. In this article, we critically examine globalizations’ impacts and present cases for and against the scaling it back.
International trade volumes are falling, income disparity is growing, immigration is under attack, and nationalism is on the rise. While few in international finance would argue that globalization should be abandoned, we can make an argument for re-examining its impacts and adjusting policies accordingly.
The case for rethinking globalization
Globalization creates winners and losers, but in recent years there have been more losers than winners. Most of us are familiar with McKinsey data showing that the majority of US households have experienced falling incomes over the last 10 years, and we know that income distribution is markedly skewed to the richer end of society. As President Obama famously stated in 2014, the top 1 percent own 40 percent of the wealth in the US, while the bottom 80 percent own just 7 percent.
This is fundamentally important because income inequality damages the well-being of societies. As the biggest single determinant of social cohesion, it correlates strongly with every measure of health and well-being.
The case against rethinking globalization
Certainly the world faces economic challenges. However, globalization is being used as a convenient scapegoat by populist politicians. In reality it is not the source of problems, but rather a force for good.
A historical view shows a doubling of global trade relative to GDP (a measure of the extent of globalization) between 1870 and 1913, the outbreak of the First World War. Between the two world wars we had a period of deglobalization—and the Great Depression. The historical evidence thus suggests that intercountry trade reduces political tensions and lessens the likelihood of major wars.
Globalization: Implications for investors
Whether the world ends up taking steps to mitigate globalization’s potentially deleterious effects, or if globalization continues on its current course, there are several prescriptions that investors can take to safeguard their objectives.
Download the full article to read the full arguments for and against pro-globalization policies, and learn how to safeguard your portfolio against changes in the global economic landscape.