The winners and losers of globalization

DO NOT BUY DOMESTIC!

Many will be aghast when reading the title: but the Hungarian peach is delicious, and the Italian is rubbish! I would like to get ahead of this reasoning before those who got upset leave. When we compare the tasty Hungarian and the watery Italian peaches, it is not a competition between Hungarian and Italian peaches. It is a competition between a delicious and a not-so-delicious peach, regardless where they grew. The point of my article would be exactly that: what decides whether a purchase is made should not be the place of origin, but the value for money.

Let’s stick to fruits for a little more, then – I promise – we can leave gardening behind. I would like to share a short exchange I had with a greengrocer at a market in the capital back in June:

‘ – Hello! Excuse me, is this watermelon good already?
– Of course, it is. It is not like the hundred-forint Hungarian one.
– Do you mean it is not that sweet?
– No, it is more delicious. This is from Greece. Unfortunately, the Hungarians have been bad for years.’

I found it odd that he was undermining his business (since a couple months later, he will dare not sell not Hungarian watermelon either) but it seemed he knew what he was talking about and the sample size he based his hypothesis on must have been large enough. I immediately drew the – probably premature – conclusion: if the ‘Buy Hungarian watermelon!’ removes foreign concurrence for a product that has no other ‘brand’ than the country of origin, then it could lead to quality deterioration. The buyer has no choice but to eat the worse product product here, while the ones with the better quality are taken to other countries, where competition is alive.

The money stays home

Another, maybe more sophisticated reason for buying domestic is that that way the money so to say ‘stays home’. A Hungarian business owner pays taxes in Hungary, and the employees of the Hungarian company are more likely to spend their money here, so one way or another, it could find its way back to me.
What this train of thought does not include is that money is not the source of our well-being, but only a medium of exchange that aid the flow of resources. Just think about whether the ability to acquire resources cheaper really hinders the economy? If we go even further, we can get a good demonstration too: if ‘keeping’ the money in the country is economically profitable, then would it not be better if I (and everyone else) kept my money in my city, street or my family – ending up with everyone producing everything for themselves. Suddenly, we returned to the self-sufficient economy, which leads to poverty. If everyone bought domestic everywhere, everyone would be poorer everywhere.

Using a fishing rod for 10 hours a day, I can catch enough fish to feed my family. Then the fishing net appears, and suddenly with 10 hours of work, I can feed the whole village, freeing up human resources that can be used elsewhere. Does it matter if the source of this economic growth is the northern or southern bank of the Danube? Moreover, does it matter if we catch the fish or buy it from a fisherman in the northern bank? The result is the same: the rest of the village can put down their fishing rods and do something more productive.

Not protectionism – self-mutilation
The idea of ‘Buy domestic’ is a form of fighting against globalization, a form of protectionism. In better vases, it only tries to apply to conscience, but sometimes it tries to achieve its goal more directly. All in all, similarly to customs duties and quotas, it ‘makes’ import products more expensive.

The blessing of trade
It is not only about the domestic producer – domestic consumer opposition, explained in the box. When we prevent innovation from outside of our borders entering our country by exposing the domestic industry to less competition, we basically say: ‘Decrease the number of resources in our economy!’.

Protectionism
(noun, origin: protectus (Latin) – to defend)
It is a strange word because in the short term it can protect the domestic producer, while it will certainly harm the domestic consumer. While the former one prefers if there is no market competition (since it is protected from it), the latter one does not welcome it because he or she will have to pay its price.

In the long-term, the most crucial resource is human creativity. Crude oil used to be a drinking water contaminant until someone came up with the idea that it can be used for making Formula-1, lego, and jaffa syrup. I am somewhat happier knowing that Elon Musk and millions in China are also working for my benefit as well, so I do not have to entirely rely on the Hungarian electric car manufacturers and footwear industry. Globalization can be viewed as the expansion of our economy via trade which brings us specialization and economy of scale advantages. It is not so clear why giving up on that would be appealing.

The blessing of trade
Fundamentally, there are three ways leading to greater prosperity; which actually, is only two. The first method: taking someone else’s. We might feel it quite absurd now that there has been peace in Europe for about 70 years, but we shall not forget that this used to be the most popular method of enrichment for thousands of years (this is a quite optimistic past tense). For this reason, let’s spend some thoughts on it!
At first glance, if I take my neighbour’s sheep by force, it seems to be a zero-sum game because I got the sheep he lost. However, it is not true. My neighbour starts to spend resources on defense against me: he builds an otherwise pointless fence, hides his sheep, and probably might lose his motivation for sheep farming if he saw that he has been playing into my hands. It is also an interesting thought whether there is a real difference between using physical or military power and taking advantage of my legislative power when I take others’ property.  From an economic point of view, they are not so different: one of the most crucial pillars of prosperity is the sanctity of property rights.
The other road to prosperity is innovation, and the third is trade, which – whatever Mr Trump says – is beneficial to both participants, otherwise, it would not happen. But these two ways – as the fishing net example showed – are the same. Both of them aid the more efficient use of resources and and free up time. Innovation is when I find a way; trade is when I find the one who has already worked it out. The final result is the same.

Why the border?
Humans, supposedly for evolutionary reasons, prefer sharing with those whom they feel closer to them for some reason. The language and the national border are the reasons why Californians are less upset about supporting the budget of Mississippi, than Germans are about aiding Greece. Nation states and nationalism are relatively recent ‘inventions’, they gained more power in the 19th century, after the French Revolution. Back then, they meant progress to society, and of course – as changes always do – they had their adversaries too. Something similar is happening nowadays too.
Technology, advancements in trade, and the globalization enabled us to think about division of labour outside of our borders. Hungarians used to think that if it is better to grow apples in Szabolcs county, then why would they struggle with it in Újpest? This notion has expanded: if it is better to grow strawberries in Andalusia, then we will do it there. Chinese footwear is not the pinnacle of luxury any more, but the exact opposite. The scale has broadened and became more specialized. The ‘us’ not only means those within the borders of Hungary but humanity and the world as well. I find it rather difficult to see it as a negative process.

Who are the losers?
However, this expanded ‘us’ has its losers. A part of them is made up of those who lose their jobs and industries, for example, when coal mining or footwear industry moved to a more efficient (cheaper, better money-value) region. Indeed, globalization does not have only winners everywhere and every time. We see its political effect in Brexit, Trump, and Le Pen. These matters must be taken care of since we are talking about a profitable business, so giving up on globalization would not be a good solution. And because it is profitable, it has the means to narrow the difference between its winners and losers.

Why globalization is what we hate?
It is a widely studied topic but in general, people agree that only 10-20 percent of the lost jobs can be connected to globalization. The remaining 80-90 percent is owed to technological advancements. So why do people hate globalization?  Because it is rather difficult to lead a political campaign against iPhones and computers. In the beginning of the 20th century, thousands of coachmen and blacksmiths lost their jobs when 15 million T-models appeared on the streets within 20 years. Yet, looking back, it would be difficult to say that car manufacturing was a bad move. However, against ‘strangers’, people who speak a different language and live outside of our borders it is absolutely easier to build a campaign on since they are ‘taking our jobs’.
The other part of the losers of globalization is the politicians and decision-makers whose power originates from nation states and their distinct separation. Leaders of countries lose some of their power if decisions are made by supranational organisations (e.g.: EU), and also when decision-making is more decentralized (e.g.: autonomic local governments or schools with entitled to making autonomous decisions). No wonder that EU integration progresses so difficultly and usually only under the stress of some crisis.

But not only money matters
To finish with something more majestic, trade does not only aids financial prosperity. Will Durant, a 20th century writer, historian, and philosopher said: ‘The crossroads of trade are the meeting place of ideas, the attrition ground of rival customs and beliefs; diversities beget conflict, comparison, thought; superstitions cancel one another, and reason begins.’

Original date of Hungarian publication: October 13, 2017