Globalization Makes No Sense

When I lived in San Francisco, I often would marvel at the movement of goods through the ports across the bay in Oakland. Full container ships would enter the bay one after another and unload their cargo, which ultimately would be making its way to the many big box stores throughout the country. After a day or two parked in the bay, the ships would head back out across the Pacific Ocean to pick up more goods from the factories in Asia and bring them to the US and other rich countries for consumption. For those living in the bay area (or in any other major port city), this movement of goods seems very normal and has become simply a fact of life.

Do you ever wonder why we actually ship stuff all around the world?

Shipping Stuff Half Way Around The World Isn’t Good Economics, It’s A Waste Of Energy

I always wondered why human beings are engaging in a process to manufacture goods thousands of miles away from where they would ultimately be consumed. Was it because it was not possible to assemble them locally? No. Was it because the materials used in the production of those goods could not be found in the United States? Perhaps in a few cases this is true. But that isn’t the main reason why this practice continues.

There is a simple reason why corporations have engaged in this strategy. It’s cheaper. Not in terms of energy or physical resources used, but in terms of money. It is “cheaper” from a financial perspective to use massive quantities of physical resources to move materials all around the world, find people willing to work for lower wages, and visiting multiple factories in different locations to assemble various components of a final product before it was ultimately shipped back across the ocean and trucked to your local shopping mall.

This alone should point to how detached our economics has become from the real world. How could it actually be financially cheaper to use more physical resources to manufacture and deliver a product to market?

Part of the problem is that we do not pay the full cost of using fossil fuels, which make globalized trade possible. Traditional oil has an energy return on investment of 25:1 or more. That means for every unit of energy used in extracting the oil, twenty-five units of energy are available for use, making the building and operating of massive container ships relatively cheap. Because the costs to the environment in the form of pollution, climate change, and species extinction are not incorporated into the costs of using fossil fuels, it has led to oil companies becoming the most profitable businesses on earth. And they use those enormous profits to undermine the government whose job it is under traditional capitalist theory to correct market failures.

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Globalization isn’t ‘cheaper’, it just hides its true costs.

A Faulty Accounting System

Globalized trade is only made possible because our economic system does not account for the true costs of using fossil fuels. If we did, the fuels that are used to power globalized trade would reflect their true cost and the practice would end overnight. How many more destructive practices would change if the industries associated could no longer get away with exporting costs onto society, the environment, and other wild species?

The truth is, from an energy perspective, it is far more expensive to ship cars from Japan, iPhones from China, and clothes from Malaysia than it is to produce them locally. Corporations are taking advantage of currency exchanges to find the cheapest labor. Because the cost of fuel to facilitate this movement of goods is so artificially cheap, labor costs become the dominant factor in relocating manufacturing facilities all around the globe. In this world of perverse economic incentives, somehow it makes sense to a CEO to close down a manufacturing plant in Detroit and move it to China to take advantage of the pinnacle of market failures – our use of fossil fuels.

Money isn’t a real physical commodity like fossil fuels. It primarily exists as bits in computers. All money that exists today is fiat, a simple accounting tool that measures how much we are able to extract from nature and turn into products and services for human consumption. The faulty assumption the modern economy is built on says that the more we consume in this economy, the better off we will all be, but there are obviously limits. Eating as much food as possible is not good for you. Continued physical exertion without rest is not good for you. The logic that maximizing GDP, which is just the summation of all goods and services exchanged for money, will somehow lead to a better world for all is so obviously flawed, yet it continues to be held in high regard by almost every mainstream economist.

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Money isn’t real, but Energy is.

Globalization Is Unsustainable

This practice is obviously unsustainable. If we do not correct our market failures, then Mother Nature will do it for us in the form of severe droughts, heat waves, floods, and extreme weather. Given the current state of how money influences politics, there is no government or corporation that will be able to deal with this issue. Ultimately, it is up to each of us to change how we live, to reduce our demand for resources by ceasing to be referred to as “consumers”, and only buy things we need from locally-produced sources while recycling or upcycling the rest.

As the people in Greece are now realizing, access to global markets can end abruptly, leaving people with the inability to meet their needs. However, there is a growing movement that is aiming to reinvent life and economies in a post-oil world. It’s called the transition movement. It centers around building thriving communities and local supply chains where people are able to meet their needs without consuming goods produced far away from home. These communities involve everyday people working together to build a resilient economy that is far more egalitarian in nature. People can meet their needs by establishing their own local currencies bypassing the centralized global currencies that make globalized trade possible.

I believe in the resiliency of life. I believe that, when hard-pressed, people will find a way to meet their needs. That’s all an economy is after all – a system for allocating resources to needs – and there are far more alternatives than the hierarchical systems of capitalism and socialism that have dominated the world for centuries.

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One solution to globalization is transition.

The logic that maximizing GDP, which is just the summation of all goods and services exchanged for money, will somehow lead to a better world for all is so obviously flawed, yet it continues to be held in high regard by almost every mainstream economist.
Chris Agnos

This article, Globalization Makes No Sense is free and open source. You have permission to republish this article under a Creative Commons license with attribution to Chris Agnos and ChrisAgnos.com. (Just copy and paste this text with links at the bottom of your page.)


Comments

14
  • Jan Lundberg, independent oil industry analyst

    The globalization phenomenon known as sail transport is as old as the hills, and is coming back. It is clean, efficient, and when oil supplies crash it will allow local economies to exchange surpluses — thereby extending food security and cultural diversity.
    The author makes entire sense regarding the shallow economics of corporate globalization, but his is a “should be” argument lacking the why of impending petrocollapse. Yet, in keeping with his points, the fact of conventional oil’s rapid depletion globally, and the constant threat of geopolitical crises to put the oil market into an economy-wracking spasm, have not had any effect on the policy of Obama or any other U.S. leader excepting Jimmy Carter.

    Reply
    • Hugo

      i agree, but this should be a second option, selling surplus not the first pick due to mass transport, besides this also creates a problem for regional markets as they are inundated from exports.

      Reply
    • Dave Urquhart

      Jan Lundberg: I noticed that you prefer to focus on the effect that oil depletion could have on the economies of the world, but stay away from the devastating effect that oil is having on our planet. Is this out of necessity as an “independent” oil industry analyst? Whether or not we still have oil to continue with the status quo, is irrelevant if we no longer have a habitable planet. I’ll listen to the climate scientists who are clear about the catastrophic effects that continued fossil fuel burning will have… and instead dismiss utilizing fossil fuel burning in order to continue with a globalized economy that serves the few, not the many. Your “oil industry analysis” (at this point in the game), may sound convincing to those who are in the dark about the crystal clear climate science; failure to rapidly move away from the burning of fossil fuels will have catastrophic consequences – but to those who aren’t – it amounts to little more than suicidal propaganda.

      Reply
  • Ren Huschle

    Great article! I would like to add something that I hope you will consider. The system you are speaking of, Capitalism is working exactly how it is supposed to. The “market” in specific reference to capitalism, are the financial markets. Stock markets. When GDP goes up, share prices go up. The Market rallies. When labor costs are reduced as much as possible, there is growth in share prices. Growth is necessary in a capitalist system because without it, share prices don’t go up and stockholders don’t get a return. Shareholders, large ones, are capitalists, we are not. You have to have capital to be a capitalist. In a capitalist system, we will always be consumers, because our only purpose is to create more value for shareholders.

    Reply
  • Aline

    I absolutely agree with this article. I’m writing a thesis where I estimate the additional energy needed to mitigate energy poverty and achieve higher collective well-being in a climate-constrained world. I use one of the few alternative indicators to GDP as proxy for well-being. I’m passionate about this realization, that striving for infinite economic growth has not and will not lead to a better a world. It is simply not sustainable. There is clear positive correlation between energy use and well-being until a certain threshold is met (when basic needs and a minimum quality of life is achieved); however from that point on we see clearly diminishing returns… as economists call it.
    In my research, one of the main barriers to moving beyond GDP is lack of political will.
    Having started my professional life in international trade (as a result of finding that massive exchange of goods fascinating…) And moved on to energy and climate change, I really follow your arguments.
    Thanks for the article!

    Reply
  • Maurice

    Chris,
    As a professional from within the port and shipping industry, your essay reads as an idealist wish-but-will-never-happen story. Money talks and cash prevails in every decisiob the shipping industry makes. All negative effects are put aside as externalities that the world and us as consumers will have to bear. However I do observe that tides may be turning, yet very slowly. What is required to reach a tipping point is another way of looking at the ‘shipping market’ as the dominant business framework. I wrote my own essay on how to build in ecosystem services into the framework. Ref the link to my own viewpoint here: Hard landing for container shipping; still many free lunches left
    https://www.linkedin.com/pulse/hard-landing-container-shipping-still-many-free-lunches-jansen

    Reply
    • Chris Agnos

      Hi Maurice,

      Thank you for your comment. My intention is not to pick on the shipping industry but how the economy is set up. Most people take the current economy as unchangeable as a given, but I think that view is holding us back as a society. More stuff doesn’t even make us happier, not when we have people suffering next door. Turns out our happiness is linked to other’s happiness too. I appreciate your working to build the awareness of ecosystems into the mindsets of the people working in the industry. There is no quick or easy fix.

      Reply
  • Barra

    You have an interesting point on the cost of carbon not being included in trade, do you have any idea of whether any research has been done to quantify this?

    One thing I feel I should say though as that you have an overly physical view of the economy. Growth in GDP comes not only from increases in quantities, but also from increases in quality, and relatedly from improvements in the efficiency of resource use. This is not to say GDP is perfect by any means, it’s majorly broken really, but don’t fall in to the trap that gdp follows a malthusian logic.

    I’d also like to ask you whether you’ve considered the implication of your argument for developing countries. While globalisation certainly has harmful effects them , we’ve also seen trade lift countries out of poverty, China in particular. If richer nations become insular and only trade locally, will this leave the poorest in the world poorer for longer?

    Reply
    • Anarcho-syndicalist

      Funny enough most countries actually experience a vast negative impact of their standards when they are forced to compete with rich nations. For example, look at NAFTA and the effects on Mexico. Mexican farmers had to compete with subsidized US farming which destroyed many livelihoods as a result and forced working class Mexico into a position that is now far more reliant on US goods being imported and no longer self reliant. In capitalism protectionist policies are historically necessary if a country wants to successfully industrialize and become a rich nation, it’s why rich nations typically impose “free trade” agreements that basically force poor countries to lean on extractive industry while making their markets compete with cheaper higher quality manufactured goods from the wealthy nations/corporations.

      Reply
  • AMIT

    sir,
    I think some points are being missed. Free trade of goods , services or people etc. is not the essential feature of globalisation. It is feature of capitalism. So capitalism is at fault not globalisation. Trump do not have problem with Italian pizza or any other foreign good if they are manufactured in America. Problem is when it is said that they should be manufactured in some other country at low cost denying jobs to US. This is capitalism.

    CAPITALISM IS BLAMING GLOBALISATION FOR ITS WRONGDOINGS.

    Reply
  • David Davis

    Economists are in the firing line in your article and as high priests of capitalism, false accounting should rightfully invoke our anger, but what are they to do? add a premium to the price of goods that we all pay? or deduct an amount from shareholders premiums? Neither is a realistic proposition in a world where Mr Trump presides so if we are honest it’s all of us to blame by perpetuating the system by ‘Consuming’ in Wallmart or any other mainstream retail outlet.

    Exposing the faults of our system is worthless unless we can conceive a truly viable alternative to the status quo which somehow continues but the cracks are showing (Brexit, Trump, ice caps melting…) ….and whatever we do come up with must be ‘economically viable’ …..which if you include growing your own food and low cost solar PV panels etc. is ironically, within touching distance….would take a gargantuan cultural and behavioural change but why not?…or we could just let Mother Nature do it for us.

    Reply
  • Don Lawson

    I like where this article is going, but I have a couple of questions. Under such an egalitarian movement, where would we get our cell phones from? Where and how would they, for instance, be produced? How are car manufacturers going to get millions of vehicles to people? What do people in northern climates eat during the winter months? How do we convince the majority of 7 Billion-plus people to make the switch to this new way of doing things? These are just a few questions that spring to mind. Please don’t get me wrong. I’m not making an argument for the status quo. I’ve never understood how “the market” is supposed to be sustainable, but have no clue how to change it. What decisions can I, personally, make in my day-to-day life in order to help propel such an idea along?

    Reply
  • Philip

    interesting thought – if global arms manufacturers were responsible for repatriating the displaced families and burial of civilian victims, there would also be a change in the flow of refugees

    Reply

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