Has globalisation gone too far?
David Brooks 18.11.2016
Some years ago we came up with the tag line - 'Think globally, market locally'. At least we thought we had come up with that statement ourselves, but it now seems widely used . We used it to explain how we were developing products to achieve high volumes, but to wrap them up with the finishing detail that made then acceptable to the local markets and above all sell through a local presence, with local post sales support. Today it is called 'globalisation' and guess what, suddenly its a bad thing.
The enabling technologies were the reality of global communications and container ships with automated container handling ports, making manufacture in far away and low cost locations not only possible, but the cheapest option. So the Far East, the tiger economies and China became the cheapest places to make the products that the western markets desired. But the situation is changing as robotics and AI evolve so that the cost of labour becomes a much smaller factor in the product cost. The benefit of high volumes to achieve lowest unit cost became not only less relevant but as the offshore locations become wealthier, so the pressure on labour costs led to wage rises and the savings from making off shore became a lot less attractive.
Soon the attraction of low cost labour achieved by manufacturing offshore that it once offered when labour was, say 80% of product cost, becomes even less attractive when robotics eliminate much of the unskilled labour. Goods that still have to be shipped halfway round the world, with quantity forecasts made 6 months or more in advance, quality remotely monitored and then local manufacture seems attractive again. Local manufacture can also deliver greater product customisation without large stockholding over heads.
One of the biggest issues with free trade is political intervention. Political pressures to improve worker conditions in offshore locations raise manufacturing costs too. But the liberal, free trade philosophy demands free movement of labour and here is a major problem. Millions of 'economic' migrants head towards the UK, Europe and USA to join in the wealth created by globalisation. Think about what has happened over the last ten to twenty years. Many large manufacturers and service industries such as call centres moved that part of their operation to off shore locations, because when all sums were done it saved money. But it ignored workers' conditions, environmental regard for which the west legislated. Western countries to a large extent ceased to be manufacturing nations, with instead products now made anywhere it was cheap to do so. Global brands added another twist by locating their head offices in low tax environments and often avoiding paying any tax at all in the markets where the sales were made. Huge profits were made, but the wealth was not evenly distributed.
And all the time the political classes seemed to be content as the west moved to a post industrial society. Technology was changing the idea that manufacturing provided jobs for large sectors of the population. When I was a student in Birmingham in the 1970s, thousands walked, cycled or took a bus to feed the labour needs of industry. Same in north London where I worked, the Great Cambridge Road in Enfield was lined with factories, most long since demolished and replaced by supermarkets and retail outlets. In the post industrial era the work force is to a large extent in low paid service jobs, often on zero hours contracts
All this change has had a profound impact on the populations who once their desire for low cost electronics goods, fashion and pre-packaed food is met wonder what the political classes are actually doing for them. They can't go offshore to drive down costs and avoid taxes. Small businesses such as ours pay more corporation tax than many global businesses sheltering in tax havens. And small businesses are 99% of UK businesses, employing staff with all the on-costs of EU legislation, paying taxes and also being the seeds for future employment. And as the old class divides between employer and employee breakdown and while the political elite focus on big multi-national businesses, the traditional political parties seem to no longer represent a growing constituency of worker-owners, so is it surprising they vote in the UK to leave the EU and in America elect Donald Trump precisely because there is no political baggage.
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