04/03/2020

Lecture 6. RESISTANCE TO GLOBALIZATION.

Globalization in general has been good from an economic perspective. But when we look at it from the
perspective of certain regions, the results have not been so good. The middle classes believe that they
have experienced stagnation or declines in wages, therefore there have been resistance reactions
specially in populist far-right and far-left countries. This resistance reaction has targeted three major
aspects related to globalization: trade liberalization, migration and supranational forms of governments
(such as European Union, that is why there exit some types of anti-EU) movements. Of the three, the
first two are the most important ones.

It is not surprising that most of the criticism has risen in the West because, remembering Milanovich’s
elephant curve, they are they ones who suffered more or benefitted less from globalization.

We are going to focus in two forms of resistance to globalization:

1. RESISTANCE TO TRADE AND CAPITAL GOODS LIBERALIZATION: MOBILIZATION

AGAINST FREE-TRADE.

Context: Proliferation of free-trade agreements after WWII and proliferation of Transnational

Corporations, the WTO, regional trade agreements... This movement is also related to stagnation of
wages in relatively rich countries. This has also made people aware about stagnant real wages and
unemployment in MDCs.
Proliferation of FTAs since early 1990s and WTO  awareness of different labour and environmental
standards worldwide.

Main events/milestones:
I. The first sign of resistance was a mobilization against NAFTA between 1990 and 1993. This
mobilization was led by labor unions, environmental groups and citizens interests in the US.
All of those groups mobilized against this free-trade agreement. Since WWII there was a
critical mobilization of population against the FT Treaty, in particular from trade unions, but
also joint by citizen groups, consumer groups, environmental… The NAFTA negotiations were
very controversial in the US.
II. This event was followed by the famous crashes in Seattle (1999) in one of the meetings of the G-8
summit between the police and demonstrators. There were clashes with the policy, it was a
controversial meeting that year.
III. The third milestone were the movements around 2008-2011 (Great Recession) in Madrid.
Indignados & Co (2011) in Spain; also in France  anti free trade positions in the Occupy
Wall Street movement that arose from the financial and economic crisis since 2008.
IV. More recently, there was also opposition in Europe to the free-trade agreement that that EU was
to sign with Canada (CETA) and between the US and the EU (TTIP). These demonstrations
were mainly made by leftist groups (Germany, Belgium). They led to the revision of those
treaties or even the withdrawal. CETA because of mobilization in Belgium and the opposition
of Flemish groups, they had to revise the treaty. In the case of TTIP is more complex because
many European countries opposed (environmentalists in Germany) and the treaty was
withdrawn from the table when Trump won because he did not want any treaty with the EU.
Opposition comes from the left and from the right. However, conservatives do not generally
demonstrate in the streets but that does not mean that they do not oppose to free trade. Political
parties have raised the issue that many of these treaties promote worker exploitation in third
world countries. In order to be competitive, usually those countries maintain labour conditions
at very low levels.

Exploitation of workers in less-developed countries mean that they should oppose to free-trade because
that would involve more exploitation (unfair trade practices, undervalued currencies).
Free-trade means lowering the cost of production as much as possible, which negatively affects the
environment which is another reason for less developed countries to oppose free-trade.

V. TNCs and the development of transnational supply chains for the production of goods is very good
for the consumer because we get cheaper and diverse products, but it is damaging the
environment due to transportation pollution, shipping… Carbon footprint of shipping goods
across the sea. Progressive movements always complain about the contribution of free trade to
climate change. In the case of TTIP, progressive criticized the allowance of transgenic
production in the US. In Europe they were concerns that there are unknown non-beneficial
effects in this regard, but we have to bear in mind that the US and EU has different
requirements on what requirements products have to meet. In the EU forms of agricultural
manipulation are only allowed if one can demonstrate that they are not harmful.
VI. Conservative have argued that free trade lowers wages and affects negatively employment
(which is not true) and labour conditions. Trump has been critical with TNCs and free trade
because of that. Also, the effects of delocalization of companies to LDCs (re-imports) and of
imports from LDCs (unfair trade practices like undervalued currencies).

Conservative/Nationalist criticism.
I. TNC’s move abroad in order to produce goods that they will sell back at home  Therefore they are
destroying jobs at home. Then they sell very cheap and make sure that they do not pay taxes at home.
II. These agreements are rewarding less-developed countries for unfair trade practices (against China,
who is manipulating its currency to be artificially low). Very often they mean social dumping, which
means that less developed countries in order to capture foreign markers they undersell their products at
prices that are below the cost of production and once they conquer the market they raise the price
again. This is difficult to demonstrate.
Trump against China  for many years they maintained their currency artificially weak to be
competitive in US markets.
III. They are eroding national sovereignty. Conflicts should be adjudicated by the domestic justice
system (if an American company is in Spain, should be judged by the Spanish court and Spanish law).
In many cases there is an arbitration committee created ad hoc (usually three peoples are elected by the
two countries to settle the conflict, but this is beyond jurisdiction therefore it can erode national
sovereignty)
In general, both conservatives and progressists criticize FTA because they provide for international
conflict settlement courts. For example, if you are a TNC in the US with a branch in Spain and
suddenly that branch has a claim related to labour standards or gender discrimination, that claim will
be solved under Spanish law and in Spanish courts. The governments behind powerful TNCs do not
like that because they say courts are usually biased towards the claimant because it is from the country
(Spain in this example).
Most trade agreements in the post Cold War area, in order to prevent these conflicts, have provided
international conflict-settlement courts, not located in any of those countries. Example: sexual
harassment law varies tremendously across countries; thus, these courts avoid these situations.
Normally, dispute settlement is done with mediators from each country and some impartial ones.
Countries however complain because they believe that the dispute should be solved in the country
where it has taken place.
IV. Another area where they are in agreement (conservatives, progres) is in opposing public
procurement (bids advertised by national governments in the form of public contracts – upkeeping of
harbors, roads, railway networks… the types of contracts that governments fund). There is a los of
corruption and in order to win those bids companies undersell the infrastructure and after a few years
they raise the price. By that time the government can’t go back to the bid and is trapped within the
agreement.
Big criticism by both sides towards liberalizes public procurement (public procurement are the
contracts that public administration makes with companies to build roads, airports...). Those contracts
are usually very profitable, and there are foreign interests in them (traditionally Americans would not
have been able to put a bid to build a European airport, but they would be very interested in doing so).
We should subsidize our own interests because these contracts create a lot of work and should not be
done by foreign companies.
The general claim is that free trade is fine within limits, trade liberalization should be controlled. That
critique expresses itself as opposition. Labour unions in the Us have always been against FTAs since
the 1970s.

Opponents of free trade always raise the issue of trade deficits to gain public opinion. They never say
we are not competitive and that’s why we don’t sell enough, they say the other country is cheating on
them. This introduces the topic of economic impact
 Economic impact of Trade Liberalization (Theoretical arguments = Consensus)
The Academia says that free trade is good for countries and for the world as a whole because it
leads to a more efficient allocation of resources (each country produces/specializes in that for which it
is better suited/ best at producing). For example: hotels and tourism in Spain. Trade means
competition, and to the extent where there is more competition, consumers get better quality and
cheaper goods in the market.
The overall effect is therefore positive but... there will be some winners but in the short term there
will also be losers always. Whenever you open an economy to trade, the benefitted sector will be that
with better/more abundant resources in relative terms. Trade liberalization between highly developed
and less developed, benefits highly skilled workers in MDC and low-skill workers in the LDCs.
The factor of production which is more abundant in a particular country will benefit, if high-
skilled work is comparatively more abundant in the US than in Taiwan, highly skilled workers in the
US will benefit from trade liberalization. That is why trade-liberalization usually eliminates low-skill
jobs in the rich countries. On the contrary, in less developed countries low-skill workers will benefit
(the majority always wins) simply because they are more abundant, and that means more competitive.
If Japan opens trade with Tanzania, Japan will benefit more in the computer sector (high skill), but
agricultural workers in Japan will lose because they will not be able to compete with unskilled workers
in Tanzania.
However, economic theory says it is a matter of time until the economy can be readjusted (for
example with retraining programs so that this people that lose their jobs can move to other sectors).
The less abundant factors of production like labour, the workers will be retrained and put in a better
position in other (new) sectors where the country is competitive in the long term. What if there is no
training? If thousands of people lose their jobs in the very short term? The mainstream in economics
says these are minor things because they care about the larger good, the collective good. The rest does
not care.
Readjustment can result impeded. For instance, if you open your market to China and it comes
succeeding as a tornado (fast, cheap  competitive  powerful), the receiving economy will face a
shock and those of those workers who are unemployed will not have the chance to readjust. By
admitting those economies, negative effects can happen. Not only China is responsible for the negative
effect of trade liberalization. Also automatization and the industry-to-service and Technology
transition. However, China’s power is so big that other countries might have not had time to adapt to it.
The problem is not liberalization, but the speed (analogy with coronavirus  if too fast, it might
overwhelm hospitals and the health system, even though not so dangerous).
The trade balance is neutral in its economic effects. Sometimes, critics are missing their target. It
seems it is trade liberalization or China is the cause of problems, but there are other factors that affect
the loss of jobs and stagnation of wages. In MDCs, automatization and digitalization. The US is not
highly dependent on trade, so if wages are stagnant is due to robotization, which is affecting workers in
 easily digitizable sectors.
There is rising opposition to free trade (wall on Mexico, protectionism against China and Europe).
Why are people supporting this if economics tells us that trade is good? There are several theories.

Should we listen to political movements or to the academic consensus?

Theories to support free trade:

I. The ones who benefit from free trade will support it (mainly the rich in rich countries, the most
abundant factor) Pro-trade. The short terms beneficiaries (abundant factor of production) will
support free trade in any given country.
II. More educated people support free trade because the exposure to these economic theories is
higher. Pro-trade.
III. Most cosmopolitan environment (have travelled, bilingual, exposed to world information) tend to
be more pro-trade whilst those who have grown without experiences from abroad tend to be more
defensive/protectionists regarding trade. Pro-trade.
IV. Economically-material security theory. Actors know nothing about trade and people who feel
more insecure will want to listen to those who explain their problems by blaming such things as
trade, migrants... whilst the people who are more materially secure will support free trade because
they don’t have to look for a cause to their problems. Their lives are fine, so they are not concerned
about the negatives of free trade. Pro-trade. If you’re unemployed, earning a miserable salary, not
getting health care, then you try to find who is responsible for this and you blame free trade (usually
support from a political party that is protectionist).

2. RESISTANCE TO IMMIGRATION: XENOPHOBIA  Parallel to globalization

growth.
Context: Rising migration as we discussed in previous sessions. There has been an increase in
migration in the last decades. Resistance to migration in MDCs has gone through waves (1970s
coinciding with the oil crisis (prosperity is broken by increases in oil prices and most of Keynesian macroeconomic
policies did not work anymore), 1990s). In a few years many immigrants were repatriated in Europe because
their contracts were cancelled. Then migration was low for a few years and the situation was calmer
again and so on (cycles).

It has taken the form of xenophobic attitudes (stereotypes and prejudice, belief that they take away our
jobs, collapse our health system, our universities and schools, criminality, rapists…), also xenophobic
violence, usually promoted by far-right conservative movements and nationalist parties. Contrary to
the opposition to free trade, the opposition to migration comes from right-wing parties and
conservatives. Arguments against immigration: they bring down wages, erode the quality of our
welfare system and destroy our national identity (nationalist argument). Despite the fact that this is one
of the most researched topics in social sciences, research has shown that the negative effect is
negligible/ambiguous and that the negative effects are compensated by the positive effects (there is no
negative effect to be found).
Which is the empirical evidence? The migrants’ effect on the economy are ambiguous.
Studies conclude that we cannot say for sure that immigrants take our jobs, low wages... but we can
say that they contribute to maintain the pension systems and bring in young population.
Who do people listen to? To the conservative movements or to academics to decide whether
immigrants have negative effects?

1. Time Trends (trends in levels of xenophobia). One would expect that the more immigration there
is, the more perceived threat and the more rejection to immigration.
- Immigration  perceived threat to identity  xenophobia. Example: Eastern EU migration after
these countries joint the EU in 2004.
- Theory very accepted and relevant in sociology. The greater ethnic competition for same
occupational niche  xenophobia. The greater the competition, the greater the possibility that
nationals mobilize against immigrant. While natives work in an occupation and immigrants in
another type of occupation it is ok, but the conflict comes when immigrants start doing occupations
that were previously reserved for nationals. For example: engineers.
Migrants are treated in the sociology of this theory as different animal species looking/fighting for
resources, and highly skilled workers behave aggressively when their jobs are taken. He does not
like the theory (doesn’t think we are species), but he did a research on Basque nationalism about
niche competition and the theory was proven true. Basque people tended to vote nationalist parties
when there were migrants from other parts of Spain taking the jobs. He believes it has to do with
other social factors. Also, when two species compete for a given niche, they both fight. Ethnic
competition theory has found that they only ones who are angry are the dominant ones.

2. There are also individual variations in the perception of immigrations according to some factors:
I. Education and critical thinking: individual knowledge of other countries, networks with people from
other origins, people who have travelled and have a wider outlook of cultural variety tend to be less
xenophobic.  less xenophobia
II. Lower perceived threat to national identity = Less xenophobia. If you feel threatened you develop
xenophobic attitudes. The theory is incomplete because they don’t tell were the feeling of threat comes
from.
III. Economic-Material Security (same as for trade protectionism): People who have material security
are less receptive to political movements (populist, nationalist groups) that try to put the blame of
economic problems on forces that are external, which are usually the most vulnerable groups.
(processes, groups, institutions) at the center of their political messages or programs (national, foreign)
 less xenophobia.

Trade and migration are not bad, but many people are against and theories have been developed to
explain why this happens. Not let’s see what the findings tell us about the validity of these theories.
3. EMPIRICAL FINDINGS: REJECTION OF FREE TRADE AND IMMIGRATION.
The findings are robust because they are the result of controlling for other factors.

A) Findings at the aggregate level:

- Ethnic competition: in societies with various ethnic group, the dominant group tends to become
xenophobic towards the minority group. The more occupational competition between groups there is,
the more xenophobia you find among the native/dominant group, the group that was there first. The
effect found is small

- Average country level of education. As previously mentioned, education plays a key role in the
perception of other cultures. The lower level of education in a country, the more xenophobia you find.
(unclear causal mechanism, it is counterintuitive).

- Immigrants from poor countries tend to suffer from more xenophobia in the receiving country than
immigrants from rich countries (unclear mechanism). The grater the migration from poor countries, the
greater the level of xenophobia. We have the associations, but we don’t know what are the
mechanisms.

- Insecurity/security. Economic and material security or insecurity also play an important role in the
perception of immigrants as a threat. Countries which are more economically stable tend to be less
xenophobic and more open to free-trade. In countries where welfare state expenditures are higher,
xenophobia tends to be lower. For example: Scandinavian countries.

B) Findings at the individual level:

- Perceived ethnic threat. The more perceived threat of the migrants as a threat to national identity, the
more xenophobia (It is not clear however of there is an actual causality mechanism or they just
correlate)

- Less education. A lower educational level involves lower knowledge of other societies and lower
social relations with peoples from different nations, therefore causing more xenophobic and
protectionist actions.

- Nationalism. Individuals considered to be more nationalists or those who vote for far-right tend to be
more xenophobic/protectionist (not clear but acts as a signal due to parties’ support).

- Role of the insecurity/security feelings regarding age (old people defend both protectionism and
xenophobia, they are more vulnerable in material terms than younger people, who are also less risk-
conscious); sex (women, protectionism and xenophobia), unemployment situation (protectionism and
xenophobia), manual work (protectionism and xenophobia) or income situation (higher income, lower
xenophobia). If we put all of these together, we observe that insecurity might be an underlying factor
as explained above.

4. POSSIBLE EXPLANATION.

Globalization implies the liberalization and deregulation of trade, which fosters competition. More
competition is beneficial for consumers, but this involves lower security in More Developed Countries
and not so generous welfare system. Lower unemployment benefits, constrained pensions, less
investment in public housing, underfunded health services… Why is this the case?

Mechanisms for this effect:

- The role of Digitalization and Robotic Revolution, which has led to unemployment due to the
decrease of human capital in favor of machines and has put pressure to decrease wages. Greater
international competition leads to businesses doing what they can to lower costs. Robot are not
competitive in countries like Bolivia without strong worker unions because wages are so low, but in
countries like Sweden, they are.
- Austerity measures in other to attract capital through a strong currency leads to lower welfare and
more exclusion, making some segments of the population of MDCs more vulnerable. Because of
greater competition, countries have incentive to maintain a strong currency. The stronger it is, the
lower you pay buying things you need in the country (like oil). How do you make your currency strong
and stable? Maintaining a balanced budget, not a lot of debt. If you have debt, your currency goes
down and vice versa. In order to have a balanced budget, you have to either spend little or get a lot in
the form of taxes, but these are not very popular, so governments spend less. They could spend less on
bureaucracy or defense, but our governments go the easy way and they save on education, pensions or
health. That way they don’t have a lot of debt, attract foreign capital and TNCs, they are competitive.
This is why welfare states are becoming weaker.
- Role of China and its entry in world markets: they are very tough competitors.

Simultaneous changes:
1. Shift from Industry to Service Economy (less productivity)  Growing exclusion in MDCs
2. Aging of Population, less growth  increased economic inequality.

What is the consequence of the mechanisms and changes?

Greater Exclusion and Vulnerability in MDCs  Greater appeal of left and right populist parties’
messages (very often false) against some aspects of globalization (example of Vox in Andalucía):
 - Far-right against Immigration and Trade (also anti-EU movements) However, there are other
factors unrelated to globalization such as identity politics that can also explain the rise of far- right
populism.
- Far Left: against Trade (also anti-EU movements ) Conclusion: Anti-Globalization backlash
(negative reactions) in MDCs.