Globalization critques – don’t get too excited

After recent election and referendum outcomes (I believe I don’t have to name them) people often made conclusions as the ‘losers’ of globalization are revolting against the old world order, or that globalization and neoclassical economics are failing us. I believe there were instances where these motives are in place. However, one can not make this simple conclusion as a one-size-fits-all reason.

Economists often make the mistake to confuse homo sapiens with homo economicus. Eventhough financial numbers often capture well-being and satisfaction (I always found ‘utility’ a wierd, extremely rational term), they don’t and in fact can not account for all factors. For example, why did the majority of Northern Irish farmers, the main beneficiaries, vote against open borders, when the urban population in Belfast, the main benefactors, favoured it? Why did Brexiters had ‘elite’ leaders when they revolted against this ‘elite’? Why does millions of republicans expect change when they elect a government led by bank executives and millionaires? Several contradictions sorround this simple argument about mere financial interests; no wonder they do not fit into social sciences.

For further thoughts regarding the topic please read these really insightful articles here and here.

As a person of numbers and figures I would rather focus on the quantitative side now on. In order to support the argument, that there are losers of globalization several good-looking graphs were produced too. My problem is that if you think about the methodology they doesn’t make sense, and  I believe most of you have heard/seen the globalization elephant graph, what is often used to justify why Western middle-classes are upset. In categorizes income brackets into percentiles, and shows the change of real income in each group.

Now think about this. I choose 20 people and rank them according to their real income. 30 years later I do the same and find that the 3rd richest guys income did not change in real terms. Then I draw the conclusion that the 3rd guy must be upset about it… I hope you see the problem. It not Bob, or Steve, or Kate; no, it’s the 3rd richest guy, whoever he/she is. The chart is pretty much the same, it doesn’t account for composition changes, labour mobility, demographics or any other influencing factors.

My other personal favourite is wealth distribution, when they take the whole as 100 percent, and make time series of a group’s share. It easily could be the case that there income rose too, but now it’s just X percent of the whole pie? How terrible. Aggregate income is not fixed, never been, comparing shares on a standalone basis doesn’t bear much fruit.

On the contrary, the ones who favour gloablization could easily make statements that it is unquestionably beneficial, since the number of people living in extreme poverty fell both in absolute and relative numbers. However, this is a fine achievement of globalization, the phenomenon is about much more than just combating one problematic aspect.

If there is any takeaway points you will have after reading this, then please let that be this: don’t fall for good looking pictures or rely on a simple figure.

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