Around fifteen years ago I was asked by the late Ulric Spencer to review a book for the Society of Business Economists journal. The book in question was entitled “Localization:A Global Manifesto” by Colin Hines, a former head of economics at Greenpeace. I am rather afraid to
say that when I first read the book in 2001, I did not particularly enjoy it and summed
it up thus: “ultimately, it is difficult to escape the feeling that the book is
a diatribe against the evils of capitalism.” But in the spirit of intellectual
flexibility based on empirical observation, I may have been too hasty in my
dismissal of some of Hines’ observations.
The basic premise of the book is that the global economic order “must reduce inequality, improve the basic provision of needs and adequately protect the environment.” There is nothing wrong with that, of course, but Hines’ proposed solution is a process of localisation in which policy actively discriminates in favour of the local. It is essentially the polar opposite of globalisation and can (in his view) be brought about by imposing restrictions on global capital flows and using the tax system to discriminate in favour of local interests.
I still think that his economic analysis is naïve and that it is essentially a late-twentieth century first world view of global problems. Nor am I sure that many people in less developed countries would thank Hines: After all, World Bank data suggest that poverty rates (defined as those living on less than $1.90 per day) have fallen from 42% of the world population in 1981 to below 11% by 2013. It is notable, too, that the book was written before China became the global powerhouse which it is today. Arguably, China has used elements of this localisation strategy to benefit the local economy. For example, many of the mighty western multinationals which Hines criticises have been forced to transfer their technology to local Chinese partners in order to be able to conduct business in the Middle Kingdom. Indeed, China has perhaps conducted the biggest poverty reduction policy of all time precisely thanks to globalisation, which has boosted incomes based on exports.
But where Hines’s views may carry more weight is in the process he described which might lead to a pushback against globalisation. In his words, “global deflation is being driven by relocation to cheaper labour countries, automation and public spending cuts.” This in turn results in significant under-utilisation of labour resources in western economies. He could well have foreshadowed the process which has led to the upsurge in anti-establishment political movements in recent years. There is more than an echo of Donald Trump in his assessment that the rolling back of the state has led to a vacuum which has been filled by multinational corporations, which have usurped government’s role in many areas of policymaking.
Part of the Brexit campaign’s appeal was to idealise a version of Britain as a powerhouse of world output, which was wiped out by government’s willingness to sell out the UK’s interests to the EU. I have a different take on it: The anger manifest during the Brexit campaign was partly the result of the failure by successive governments to promote local interests, at a time when the threat posed by globalisation did indeed mean that a lot of British jobs were exported to lower cost locations (a view echoed in the US election campaign). This was given full expression in the immigration debate. But as Beatrice Weder di Mauro points out (here), German immigration numbers are roughly similar to those of the UK. Yet the degree of anger in Germany towards the EU is a lot lower than in the UK. You might conclude from this that the real problem in the UK is not so much the EU, or immigration, but general dissatisfaction with the economic status quo - a view which is increasingly the consensus.
But although Hines appears to have correctly identified the process triggering the backlash, this does not mean that his solutions are necessarily the right ones. Localisation essentially places limits on trade but all economists would agree that trade does lead to higher living standards, although as BoE Governor Carney noted recently, “the benefits from trade are unequally spread across individuals and time.” Hines may be wrong to simply dismiss “the flawed theory of comparative advantage” but he is right in that much greater emphasis must be placed on the negative consequences. The events of 2016 should act as a wakeup call for western governments to look more closely at their policy prescriptions. This does not mean that protectionism is the answer, but it does mean a rethink of a policy which allows markets to provide unfettered solutions may be in order.
The basic premise of the book is that the global economic order “must reduce inequality, improve the basic provision of needs and adequately protect the environment.” There is nothing wrong with that, of course, but Hines’ proposed solution is a process of localisation in which policy actively discriminates in favour of the local. It is essentially the polar opposite of globalisation and can (in his view) be brought about by imposing restrictions on global capital flows and using the tax system to discriminate in favour of local interests.
I still think that his economic analysis is naïve and that it is essentially a late-twentieth century first world view of global problems. Nor am I sure that many people in less developed countries would thank Hines: After all, World Bank data suggest that poverty rates (defined as those living on less than $1.90 per day) have fallen from 42% of the world population in 1981 to below 11% by 2013. It is notable, too, that the book was written before China became the global powerhouse which it is today. Arguably, China has used elements of this localisation strategy to benefit the local economy. For example, many of the mighty western multinationals which Hines criticises have been forced to transfer their technology to local Chinese partners in order to be able to conduct business in the Middle Kingdom. Indeed, China has perhaps conducted the biggest poverty reduction policy of all time precisely thanks to globalisation, which has boosted incomes based on exports.
But where Hines’s views may carry more weight is in the process he described which might lead to a pushback against globalisation. In his words, “global deflation is being driven by relocation to cheaper labour countries, automation and public spending cuts.” This in turn results in significant under-utilisation of labour resources in western economies. He could well have foreshadowed the process which has led to the upsurge in anti-establishment political movements in recent years. There is more than an echo of Donald Trump in his assessment that the rolling back of the state has led to a vacuum which has been filled by multinational corporations, which have usurped government’s role in many areas of policymaking.
Part of the Brexit campaign’s appeal was to idealise a version of Britain as a powerhouse of world output, which was wiped out by government’s willingness to sell out the UK’s interests to the EU. I have a different take on it: The anger manifest during the Brexit campaign was partly the result of the failure by successive governments to promote local interests, at a time when the threat posed by globalisation did indeed mean that a lot of British jobs were exported to lower cost locations (a view echoed in the US election campaign). This was given full expression in the immigration debate. But as Beatrice Weder di Mauro points out (here), German immigration numbers are roughly similar to those of the UK. Yet the degree of anger in Germany towards the EU is a lot lower than in the UK. You might conclude from this that the real problem in the UK is not so much the EU, or immigration, but general dissatisfaction with the economic status quo - a view which is increasingly the consensus.
But although Hines appears to have correctly identified the process triggering the backlash, this does not mean that his solutions are necessarily the right ones. Localisation essentially places limits on trade but all economists would agree that trade does lead to higher living standards, although as BoE Governor Carney noted recently, “the benefits from trade are unequally spread across individuals and time.” Hines may be wrong to simply dismiss “the flawed theory of comparative advantage” but he is right in that much greater emphasis must be placed on the negative consequences. The events of 2016 should act as a wakeup call for western governments to look more closely at their policy prescriptions. This does not mean that protectionism is the answer, but it does mean a rethink of a policy which allows markets to provide unfettered solutions may be in order.
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