Economic Globalisation and Elites Under Siege

In 2004, in the middle of an unprecedented doubling of global trade by volume in the eight years from the turn of the century until the Global Financial Crisis, Samuel Huntington published an essay lamenting the "denationalisation" of American elites. 

According to the political scientist, seen by many Americans as the greatest of his generation, Huntington noted the growing gap between the views of intellectual and economic elites from those held by the majority of the American public. 

These elites – memorably referred to as Davos Men – championed participation in the global economy, liberalised trade and the freer movement of peoples between countries as being essential for greater economic integration.  

Huntington defined the elites as "academics, international civil servants and executives in global companies, as well as successful high-technology entrepreneurs."

No doubt this included what many would describe as 'political elites', who champion the benefits of globalisation without consulting or convincing their citizens of the costs and benefits.

Davos Man viewed national boundaries as obsolete requiring further breaking down, despite growing scepticism of the benefits to the broader population. 

This placed the political elites in a bind. Intellectually allied with Davos Man, the American political elites promised to moderate the ill side-effects of globalisation but were nevertheless committed to promote the advance of these forces at the same time. 

In Huntington's blunt assessment, blind faith in the inevitability of globalisation was increasingly distancing the elites from the majority. 

This meant political leaders drawn from that same intellectual pool risked an outlook that was increasingly unrepresentative of the views of the majority. The implications for these political elites competing within a democratic polity were obvious. 

Huntington's characterisation of elites and their separation from the common person is deliberately stark and stylised to provoke debate.  

However, two recent events have brought renewed interest in the extent of a backlash against economic globalisation and greater international interdependency. 

The first was the vote by Britons to leave the European Union. Brexit occurred despite the majority of the country's economic and social elites ridiculing the notion and dismissing what they believed to be a foolhardy course of action.  

The second, and perhaps greater shock for political observers, was the unexpected and unorthodox victory by Donald Trump in the American presidential contest. Trump prevailed against almost universal expectations that a candidate promising to reassess and wind back American commitments to internationalism and free trade in particular – amongst other bold pledges – could ascend to the country's highest office. 

The elites also believed that Trump was not fit to hold high office, due to numerous allegations of inappropriate conduct and his failure to release his tax returns, among many other perceived shortcomings.

In both cases, the popular vote went against the 'elite consensus', that is one based on support for policies that break down national barriers. 

Brexit also revealed fault lines across Europe, with rising scepticism about the European Union experiment – arguably the greatest manifestation of the elitist agenda.

In contrast to the political currents gathering force in American and European democracies, the emerging champions of free trade and economic globalisation seem to be many of the governments and populations in East Asia, Australia and New Zealand. 

The contemporary appetite for economic agreements is one indicator. By 2015, China ratified or was in negotiations for 23 Free Trade Agreements (FTAs). FTA numbers for Singapore, the Republic of Korea, Japan, Malaysia and Thailand are 31, 25, 24, 22 and 22 respectively. Australia has signed and ratified 10 FTAs. Most were concluded in the past decade.

The ten member states of the Association of Southeast Asian Nations (ASEAN) have concluded FTAs with China, Japan, South Korea, India, Australia and New Zealand. China is promoting a Regional Comprehensive Economic Partnership with the ASEAN countries and the six states that it has signed FTAs with.

Meanwhile, many of the East Asian states and Australia have become the most enthusiastic proponents of the Trans Pacific Partnership proposed by the Barack Obama Administration that President-elect Trump is promising to abandon as one of the first acts of his administration. 

Importantly, and far from a set of principles championed only by elites, much of the population throughout the Asian region remain strongly supportive of economic integration and view economic globalisation as an opportunity rather than a threat. There does not seem to be anti-trade or anti-globalisation movements gaining significant strength in countries like China, Japan or Vietnam. 

In reality, the increase in support for economic globalisation throughout Asia and the decline in popularity for the same phenomenon in countries including the US and Britain are closely connected.

The key is to understand what is occurring and the impact developments – positive and negative – are having on different sections in society and parts of the world.

Economic globalisation has been made possible because of the technological advances that we have seen over past generations. 

The capacity to send large amounts of information across the world at the speed of light means communication is instantaneous. Capital can be deployed almost anywhere in the world just as quickly. Cloud technology means we can access any and all information we have stored from virtually any location in the world.

Advances in transport, logistics, engineering and fuel efficiency means it now costs about two-and-a-half cents to transport a small package on a super-tanker from the US to any port in Asia. A machine in one part of the world can communicate intelligently and work with others around the world in real time. 

In this increasingly interconnected world, Huntington's elites are supremely placed to take advantage. There is global demand for the skills of the highly talented and well-educated. Those with funds to invest can easily deploy them anywhere in the world to maximise return. From their computer terminal in New York or London, the well-informed can buy or trade any commodities from any corner of the planet. 

These individuals are primary beneficiaries and understandable champions of a globalised world of diminishing physical, legal, regulatory and commercial barriers.

Unlike smaller local businesses bound by geography and other constraints, multinationals like Walmart can easily relocate operations and plants to a more favourable location anywhere in the world. Agnostic as to whether they manufacture or source products from Cleveland or Shenzhen, their decisions are based almost purely on commercial grounds. 

The Asian region has benefitted disproportionately from this globalised world. In the post-war period, rapidly developing East Asian economies such as Japan, South Korea, Taiwan, Singapore, Malaysia, Thailand and most recently mainland China have all relied on a remarkably similar export-manufacturing model. Countries including Vietnam, Indonesia and possibly Myanmar are now joining the fold.

They grow by making products for export cheaper, faster and more reliably than any other part of the world. In East Asia, more than two-thirds of all manufacturing is for the export sector. For highly export-dependent economies such as Malaysia and Singapore, the figure is closer to 85 per cent, while for China it is about 60 per cent. 

East Asian manufacturing as a proportion of global manufacturing trade increased from about 12 per cent in 1970 to 26 per cent in 1990. The figure is approaching 40 per cent today. In this century, China is the outstanding individual performer, increasing its share from 0.5 per cent in 1970 to over 15 per cent currently.

The success of this approach for the region is borne out by the fact that whereas East Asia accounted for a mere 14 per cent of global GDP in 1960, the figure is now around 30 per cent. If linear trends continue, the region could account for over a third of global GDP by 2035 and half of world output by 2050.  

For much of Asia, globalisation has been a godsend. It has allowed the region to utilise its cheap and plentiful supply of low-cost labour with the result that hundreds of millions of Asian citizens have been lifted out of poverty. 

The creation of a new and ever growing middle class will subsequently fuel regional growth for the next few decades even as competition for a slice of the export-manufacturing pie becomes ever more intense. 

For advanced economies such as Australia's, the new centres of economic activity and growth in Asia in its region have been a boon. Indeed, the last four major economic agreements signed by the Australian government in the past three years have been with Asian partners in South Korea, Japan, China and an enhanced agreement with Singapore.      

It is important to note that American and European multinational firms have been principal agents of the globalisation agenda. The leading sources of foreign direct investment (FDI) into China, Japan, South Korea, Singapore, Malaysia and Vietnam – to name six dynamic regional economies – are all advanced economy companies, with the overwhelming majority from North America, Europe, Japan and South Korea.

Indeed, around four-fifths of all FDI into East Asia is destined for export-manufacturing sectors. Firms based in advanced economies are behind roughly two-thirds of all manufactured goods for exports out of East Asia. To offer the iconic example, an iPhone is 'Designed by Apple in California', while parts and assembly can involve twenty countries including a dozen in Asia.

Globalisation has the effect of dramatically cutting costs and increasing the profit margin and market penetration of world class firms. It has led to an explosion of choice for consumers. In large part, it is an explanation for why many common consumer products are comparatively much cheaper than one or two decades ago, thereby lowering the cost of living and why deflation and not inflation may well loom as a greater threat for many sectors and the macro-economy.

The benefits of globalisation have not been distributed evenly. During the period when globalisation really took off, from 1990 onward, real average wage growth in manufacturing in advance economies such as the United States actually doubled. This is a quicker rate of manufacturing wage growth than occurred from 1950-1970. In other words, the common belief that globalisation is 'bad' for average workers in Western economies is exaggerated at best, or inaccurate to a large degree.

Even so, and over the same period, the Standard & Poor Index of the largest 500 companies by market capitalisation increased more than sixfold. The FTSE 100 in the United Kingdom has trebled in that period. Growth in the salaries of the well-qualified 'elite class' have exceeded average wage rises multiple times. Even though globalisation has brought enormous benefits to those in advanced and developing economies, individuals, entities and regions have been blessed by the phenomenon to different extents

There is also a lack of understanding among many communities that their consumer choices add to the forces driving globalisation. For example, if consumers buy imported motor vehicles from Asia in preference to locally manufactured vehicles, it should not come as a surprise when local manufacturing suffers and ultimately closes down. This is however not the case for many people, who urge politicians to 'save' local manufacturing jobs, despite personally preferring imported goods. 

For politicians in democracies, the message of opportunity and what would be lost if globalising forces were held back is difficult and complex to sell. Armed with the belief that one is 'missing out', the yearning to return to an economic vision of the past rendered more agreeable and reassuring by the passage of time, or to one that did not exist at all, is strong. That makes it tempting for politicians to embrace policies promising such a retreat.

Further, the politics of globalisation will become more difficult. The relentless advance of technology will lead to major disruptions and further erode certainty of employment and other conditions that societies and individuals cherish. 

For example, industrial robots are becoming cheaper and smarter. With the emergence of the 'Internet of Things', robots are working intelligently with other machines, and even with human beings as they correct our mistakes. The McKinsey Global Institute estimates that advanced robotics will have an economic footprint of up to US$1.4 trillion in manufacturing sectors alone within a decade. 

Self-driving cars will upend motor vehicle manufacturing, ownership and services sectors built around the traditional automobile sector. 

As with developments in the previous decades, those best equipped to deal calmly, and benefit from these disruptions are the much scorned elites.       

The warnings by Huntington and others need to be taken seriously as they identify a growing divide that threatens global economic and social progress.   

Political elites need the courage and eloquence to challenge those making false promises of returning people to a lost era of greater simplicity, prosperity and certainty. It is preferable for leaders to better explain why globalising forces and technological advances cannot be turned back. The governments which attempt to force companies to invest within their boundaries will ultimately not be successful.  

In a world where the capacity of governments to engineer and control outcomes is diminishing – assuming that it was once possible to do so in any significant way - it is easy to forget that governments retain considerable influence over levers that can help economies and societies better adapt and thrive. 

Reform of education, training and workplace policies can enhance individual and community capacity. Taxation policies can be used to shape incentives and regulatory policies can be altered to promote fair competition and break down entrenched advantage. 

The case for globalisation needs to be remade, and the benefits need to be more clearly articulated.

We should heed Huntington's warnings and ensure the benefits of globalisation are more evenly distributed throughout society and ensure there is broader understanding of the consequences of the inevitable changes shaping our world.