Critics have exposed how globalization’s benefits have been unequally distributed around the world. Many of the world’s poorer regions have become poorer still in relation to the regions that gained. And within regions, it turns out that globalization often worsens wealth and income inequalities. However, critics admit and defenders boast that at least for some — for example, the US — globalization has meant higher wealth, income, or consumption levels. But a closer look raises questions about these beneficiaries of globalization.
The fact is that those who have gained wealth, income, or consumption include many — and likely most — who paid and continue to pay for those gains by absorbing much greater levels of risk. A riskier economy today affects capital and labor now and for years to come. Individuals and businesses behave differently when confronted with more rather than less risk. Greater risks shape the world economy as much, albeit in different ways, as do rising world trade, expanding global capital movements, and spreading multinational corporations. To explore this point, let’s briefly consider rising economic risk in the US, a nation widely thought to have benefited from a globalization that its corporations and its government have done much to shape.
Among individuals, the catalog of rising risks is extraordinary. The data on employers shifting ever more from permanent to temporary workers, coupled with the long-term decline of union membership (and hence of workers covered by multi-year contracts), document changes that increase job insecurity. The outsourcing debates reflected and amplified rising anxieties about job security. Consider the testimony of Princeton economics professor Alan Blinder before a US Senate committee on September 23, 2005: “the share of American jobs that is vulnerable to offshoring is certain to rise . . . tens of millions of additional American workers will start to experience an element of job insecurity…”(the italics are Blinder’s).1
The dramatic and continuing reduction of private pensions raises the risks of aging for private-sector workers. The rising assaults on Social Security, albeit not yet successful, indicate more danger that its support may be reduced. The number of Americans without health insurance keeps rising. The rising level of personal indebtedness, along with the growing proportion of disposable income required to service personal debts, adds significantly to the uncertainties impinging on current US households. The rapidly growing proportion of homes financed with adjustable-rate, interest-only, and reverse mortgages places household living standards under the constant threat of interest rate increases.
Jacob S. Hacker’s recent book, The Great Risk Shift, is but the latest in a growing mountain of books and articles that document how the individual lives of Americans have become more economically precarious. Most of these works also show how efforts to cope with rising economic risks have damaged their physical and mental health, personal relationships, and thus the quality of life generally. Unfortunately, relatively few publications link the broad scope of rising economic risks to globalization (Hacker’s book is especially poor on just that connection). At best they recognize only very limited connections such as outsourcing (as in Blinder’s testimony).
On the side of capital, riskiness has also grown. Corporations everywhere confront possibilities of technical improvements by actual or potential competitors anywhere in the world, new or changed laws in foreign countries, new or changed administrative policies there, altered labor market conditions, court decisions in overseas jurisdictions, and so on. Such alterations in the global economy threaten to compromise a US corporation’s market here, its raw material source there, patent protection, a foreign direct investment’s profitability, and so on.
It takes no special economic expertise to understand that all corporate investment decisions must take these risks into account — or try to — since the success of all investments has become riskier in a globalized environment. Most US corporations cannot effectively monitor all these risks nor rely on the mushrooming consultant enterprises who offer to provide such monitoring for fat fees (themselves costs flowing from the risks). So US corporations have taken other and much costlier steps to cope with those risks.
One index is the amount of money US corporations feel the need to hold on to (rather than invest in growing their enterprise, hiring more employees, etc.). The numbers here are rather stark. Back in 1980, for most US corporations, the ratio of cash holdings as a portion of their total assets was just over 10%. By 1995, this ratio had risen to 17%, and by 2004 it had risen further to 24%. The data are nicely presented in a revealingly titled September 2006 working paper at the National Bureau of Economic Research: “Why Do US Firms Hold So Much More Cash Than They Used To?”2 The authors conclude that rising economic risks explain the increasing corporate cash hoarding. While they do not explore such hoarding’s economic costs, a brief list of such costs would include less employment, lower economic growth, and reduced tax receipts in the US. The secondary and tertiary costs, economic and social, ramifying from rising corporate cash hoarding are too many, too diverse, and too long-lasting to enable any precise measurement.
The conclusion follows rather straightforwardly. To date, most discussions of the distribution of winners and losers from globalization have concentrated on whose wealth, income, or consumption rose and whose fell, relatively and absolutely. However, an overall assessment needs to consider how globalization has imposed rising economic risks and their consequent costs not only on its losers but also and especially on its winners. No one can seriously claim to know, let alone measure, all the gains and costs of globalization, direct and indirect, present and future. However, it is a safe bet that one key foundation for rising skepticism about and opposition to globalization is the growth of economic risks it has spawned even among its beneficiaries.
1 “Inequality and Insecurity,” Statement of Alan S. Blinder to JEC/DPC Forum, 23 September 2005. <jec.senate.gov/democrats/Documents/Hearings/
2 Thomas W. Bates, Kathleen M. Kahle, and Rene M. Stulz, September 2006, <http://www.nber.org/papers/w12534>
Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006). This article was adapted from an earlier version that Wolff published at www.globalmacroscope.com.